Tax refund loans, also called tax refund advances, are funds offered by the nation’s three biggest tax preparation services – H&R Block, Jackson Hewitt and Liberty Tax Service – to their in-person (not online) tax-preparation-service customers. Unlike the tax refund anticipation loans of the past, which had high interest rates and fees and which the government shut down, the new tax refund loans do not charge any interest or fees whatsoever. Taxpayers can borrow as much as $1,300, depending on the company, anticipated refund amount, eligibility criteria and underwriting.
Types of Tax Refund Loans and Their Associated Costs
It usually takes about 24 hours to get the money, whereas it may take up to 21 days to receive a tax refund via direct deposit from the Internal Revenue Service (IRS). So why wouldn't you want one?
Here's a look at whether there are strings attached to these “no-strings” loans, which may be loss leaders intended to bring in business to tax preparers in the age of Turbo Tax. Each company’s refund loan is similar, but there are differences in the fine print. Read below for the key details you need to know. (For more, see 5 Smart Ways to Use Your Tax Refund.)
The company offers refund advances of $500, $750 or $1,250 after you file your taxes at a participating H&R Block office (it doesn’t apply to using H&R Block’s online software). In most cases approved clients may receive their money the same day they apply for a refund advance loan. You’ll receive the funds on an H&R Block Emerald Prepaid MasterCard,a reloadable prepaid card that can be used to pay bills, make purchases or get cash. The fees associated with this card include:
- Up to $4.95 (charged by the retail location, not the Emerald Card) to reload the card with cash
- 2% to instantly fund your card from a preprinted payroll or government check and 4% for all other checks (also not charged by the Emerald Card)
- $3 per ATM withdrawal, plus a surcharge for out-of-network ATMs
- $1.50 per ATM balance inquiry
- $1.50 per declined ATM transaction
- $4.95 inactivity fee per month after two months of no credit or debit activity
An H&R Block spokesperson did not disclose the average cost to have a taxpayer’s return prepared in store but said that the company can estimate the cost of tax prep for the client prior to completing the return. The final fee depends on complexity and other factors. H&R Block offers free federal filing in its offices for taxpayers whose situations qualify them to use the simple form 1040EZ.
Customers who can’t afford H&R Block’s tax preparation fees up front can pay the company via an FDIC-insured refund transfer account provided by BofI Federal Bank. Customers who establish a refund transfer account will have their tax refund loan repaid from that account after their refund arrives. Any remaining tax refund can be loaded to the Emerald card, direct deposited to an existing bank account or, for an additional $25 fee, issued as a paper check. Establishing a refund transfer account costs $34.95. A refund transfer account is not required for customers who pay their tax preparation fees to H&R Block at the time of filing. (For more, see Tax Withholding: Good for Government, Bad for Taxpayers.)
Refund advances of up to $1,300 are available after you file your taxes at a participating Jackson Hewitt office. You’ll receive the funds within an hour, plus a $50 bonus, if you choose to have them deposited to an American Express Serve Card, which is a reloadable prepaid card that has a $3 monthly fee but no fee for receiving direct deposits, adding money from a bank account, paying bills online or withdrawing money from in-network ATMs (withdrawals from out-of-network ATMs are $3.50 plus that ATM’s fee). Cash reloads cost up to $3.95 depending on the retailer’s fee.
Customers can also receive refund advance funds via direct deposit the next business day. Customers may qualify to borrow $200 to $400 even before filing their taxes by bringing in a pay stub or other proof of income. This initial loan will be subtracted from the total refund advance Jackson Hewitt offers once your tax return is complete.
Customers who can’t afford Jackson Hewitt’s tax preparation fees up front can pay them via Assisted Refund. Their refund will be deposited to a temporary, FDIC-insured bank account from Republic Bank & Trust Company or Civista Bank, from which it can then be transferred to an American Express Serve Card, a Walmart MoneyCard, another prepaid card or a personal bank account. The fees associated with this account are not disclosed online, and a company spokesperson declined to provide them. The spokesperson said the company’s professional tax advice starts at $48, and the company’s average fee for professional tax preparation is about $230, which is the same as last year.
Liberty Tax Service
Refund advances of $500 to $1,300, known as Easy Advance, can be had after you file your taxes at a participating Liberty Tax office. Liberty offers the option to receive your tax refund on a NetSpend Liberty Tax Prepaid MasterCard, whose fees are generally low and reasonable for a prepaid card. (For more, see How Do NetSpend Cards Work? and How NetSpend Works and Makes Money.) Customers typically receive their funds on a NetSpend card within 24 hours of the IRS accepting their tax return; direct deposits may take longer for your bank to process. The offer is available until Feb. 28.
Customers who can’t afford Liberty’s tax preparation fees up front can pay them via an FDIC-insured refund transfer account provided by River City Bank Tax Division or Republic Bank & Trust Company. Customers who establish a refund transfer account will have their tax refund loan repaid from that account after their refund arrives. Your remaining tax refund can be loaded to the NetSpend prepaid card, direct deposited to an existing bank account, issued as a paper check or, for a $10 fee, issued as Walmart Direct2Cash, a way for customers to claim their refund in cash in a Walmart store to avoid potentially higher check-cashing fees.
Liberty’s website says that additional fees apply to certain disbursements but does not provide further details. There may be fees associated with a refund transfer account. Liberty Tax Service did not respond to a request for additional details about these fees.
The Bottom Line
While tax refund loans themselves are completely free, taxpayers who sign up for them may have to pay tax preparation fees (unless they qualify for free tax prep). They may also pay fees associated with borrowing money to pay those preparation fees, as well as fees associated with the prepaid cards onto which refund loans and refunds themselves may be loaded.
These fees may be worth it to some taxpayers, who would otherwise have to turn to pricier loan options. Other taxpayers who need cash to tide them over before their refunds arrive may do better by borrowing from other sources rather than getting one of these loans. (For more, see Understanding the U.S. Tax Withholding System.)