Americans constantly hear radio and TV ads saying “Get a Fast Cash Refund,” “Rapid Refunds Available,” and “Instant Refunds Now!” All of these speedy refunds on your income taxes are really LOANS AGAINST THE REFUND. To get the loan, the tax filer must pay a fee. In essence, therefore, the tax filer is paying a very high price to borrow his or her own money! According to the Consumer Federation of America and the National Consumer Law Center:

• Nearly 9 million Americans took out Refund Anticipation Loans (RAL) in 2006.
• In 2006, Americans spent almost $1 billion in fees for these loans.
• Loan fees typically range from $30 to $90, which can translate into Annual Percentage Rates on these loans from 60% to 700% if you paid that same amount in interest charges.
  

Example

For a tax refund of $2,000, the fees a tax filer might pay for a RAL:

This is over 10% of the total refund!
This Refund Anticipation Loan has an Annual Percentage Rate of 142% even though the money is likely to arrive only about 10 days sooner than the taxpayer would otherwise receive their income tax refund!

Alternatives to a Refund Anticipation Loan

Instead of paying such high fees to receive their income tax refunds sooner, tax filers can use these fee-free alternatives:

• File Electronically – the IRS offers electronic alternatives to filing paper returns including “Free File” (www.irs.gov/efile/). If your income is $54,000 or less, you can prepare and file your federal taxes online for free and get these benefits also:
  1. Accuracy – the IRS does automatic checks for accuracy.
  2. Convenience – taxes can be filed 24 hours a day, 7 days a week.
  3. Speed – filing in this manner ensures that you receive a fast refund.
• Direct Deposit – when you request direct deposit, the tax refund is directly deposited into your bank account. The benefits of direct deposit are:
  1. Safety – direct deposit is an added protection against lost or stolen checks sent in the mail.
  2. Speed – tax filers who request direct deposit usually receive their refunds in 10 to 14 days – about a week faster than a paper check in the mail.
  3. Choices – the IRS (Form 8888) gives tax filers the option of splitting their deposit into more than one account. Filers can split the refund between two or three accounts, giving them a convenient way to manage their money. Part of the refund can be put into checking and part into savings.

Volunteer Income Tax Assistance Sites

Volunteer Income Tax Assistance (VITA) sites are set up around Ohio (and the U.S.) where certified tax preparers help prepare your taxes at no cost. VITA sites are available to seniors, the disabled, and taxpayers with low-to-moderate incomes. To locate a VITA site near you, call the IRS at 800-906-9887.

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