Come April 15, nearly 10% of all American taxpayers will borrow their own money from themselves at a steep price with a clever lending tool called a tax refund anticipation loan.  The extortive loans carry interest rates as high as 744%.  What these tax helpers are offering as a “rapid refund” is really just a loan made by the tax preparation service.  Within one or two days, instead of patiently awaiting your refund to come through the mail or direct deposit, some people choose the quick fix of getting their money, cash in fist, as quickly as possible – unfortunately, at great expense.  The IRS pays back this loan when the tax refund comes back to the tax preparer.  Even though these loans are only held for ten days in some cases, the individual might fork out as much as a few hundred dollars for this privilege, depending upon their situation.

Predatory Lending

Overall, this type of extreme interest rate is referred to as predatory lending.  These dishonest practices cost Americans around 500 million dollars a year in service fees.  Sadly, the folks who need the money the most have a tendency to take advantage of these programs in order to get their money as fast as they can.  The biggest targets are those folks who receive the Earned Income Tax Credit, having recently made up 55% of the refund anticipation loans. The EITC program was formed in 1975 so that low wage workers can get a tax break in attempt to diminish poverty-like conditions for folks who hold down a job.  But this tax break is being is being short-changed by those tax preparation services who take the bulk of the credit for themselves in the form of fees for their rapid refund service.  Tax refunds based on the Earned Income Tax Credit are the recipients of the most Federal Tax refund pool.

It’s just insane that people will pay as much as $225 out of a $780 dollar tax refund, just so they can get their money eight days sooner, rather than waiting the full ten days (assuming they filed electronically).  But it’s hard to put yourself in their shoes unless you’ve walked a mile in their moccasins.  It must be a difficult to try to make ends meet in a low-income situation so desperate that getting tax refund money a few days sooner might mean the difference between eviction or missed meals for their children. Remember that the faster you want your money, the higher the fee that you will be charged by your lender.

Rapid Refund Qualification

There are a few different criteria to qualify for a rapid refund, but as you can see, it’s not all that difficult to qualify.  As long as you haven’t done anything that makes you a high credit risk, or keeps them from getting your tax refund check, you’re golden.

1. You must be an adult 18 years or older
2. You will have to pass a credit check
3. You must present a current and valid photo ID
4. Your federal refund must be over $300
5. You cannot have any debts that will prevent you from getting your federal refund

Tax Education

People need to be educated that they don’t have to be giving up their money in the first place.  Employers will let workers change their W-4 forms to adjust their withholding to more closely match their tax responsibility.  That way, people aren’t paying out their wages in taxes throughout the year unnecessarily in the first place.  People also need to be educated that electronic filing is free for many people now and with direct deposit it only takes about 10 days to get a refund.

Tax Help

If your financial life is difficult, it’s even more important that you consider the pros and cons of getting your money quickly rather than getting even more money by waiting the full ten days.  Free filing is available for those who qualify using the criteria published at www.irs.gov.  You can also get tax help from the Volunteer Income Tax Assistance program if your incomes is lower than $35,000.  VITA’s phone number is 1-800‑829‑1040, and they have locations around the country.  Keep what is yours – don’t let those abusive tax preparers keep so much of your hard-earned income.  Explore your options and be patient – you might find there’s a few hundred dollars or more in store.

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