Most Asked Questions about Refund Anticipation Loans (RAL)

What You Should Know About Tax Refund Anticipation Loans

On January 29, 2024, taxpayers will welcome the opening of tax season with mixed emotions. Some eagerly anticipate tax refunds, while others bear the weight of anxiety. In such situations, some taxpayers resort to seeking refund anticipation loans (RALs). Understanding the workings of these loans and the potential disqualifications is crucial. Here’s what you need to know.

Offered by certain tax preparers, an RAL (Refund Anticipation Loan) is a type of loan that taxpayers can opt for if they are anticipating a tax refund. It’s worth noting that this loan must be repaid, as it falls under a contractual agreement. By entering into an agreement with a lender, usually a bank, individuals can receive an advance on their projected tax refund in exchange for a commitment to repay the loan. One of the main advantages of an Refund Anticipation Loans RAL is quick access to cash, even if the tax refund itself is not disbursed for several weeks.

As Monday ushers in the start of tax season, receiving your tax refund immediately might not be possible. The law stipulates that the Internal Revenue Service (IRS) must wait until mid-February to distribute refunds to those who claim the Earned-Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC).

Refund Anticipation Loans

Considering typical processing times for banks, as well as weekends and the upcoming President’s Day holiday, it is anticipated that the earliest refunds related to EITC and ACTC will be accessible on February 29, 2024. This is, of course, assuming that the refunds are made through direct deposit without any complications. Is worth mentioning that February 29, 2024, marks the final weekday of February. It is important to note that the recording on the IRS phone line advises taxpayers to expect these specific refunds to become available starting from the initial week of March.

In the process of facilitating RALs, the IRS maintains a clear separation. Lenders are not supplied with information by the IRS, nor are taxpayer tax refund amounts guaranteed. Consequently, every year, I am bombarded with inquiries regarding RALs.

Here’s a quick rundown of some of the most common, together with my answers:

If RAL was denied, does that mean I won’t get my tax refund?

Despite being coordinated or completed at the same location, keeping the Refund Anticipation Loans (RAL) application separate from the tax return preparation is necessary. Turning down the RAL will not impact your eligibility for a tax refund, as it will still be payable to you even if you have yet to receive any funds from the lender.

However, it is important to note that you might still find yourself responsible for various fees associated with loan applications, such as credit check fees and miscellaneous fees. This is a crucial aspect to consider when searching for a reliable RAL provider, as some may prioritize earning revenue from these charges rather than genuinely assisting you in obtaining the loan.

Why would I be denied of RAL?

When it comes to getting turned down for an RAL, there are a variety of factors that could come into play. One of the most frequent causes of this rejection is the lender deeming you too much of a risk.

When considering the size of your tax refund, you must be optimistic that it will cover the loan once interest rates, fees, and tax preparation fees are deducted. Otherwise, you must rely on your finances to cover the remaining amount. Furthermore, alterations in tax laws and offsets, where the government reduces your refund due to outstanding debts like child support or student loans, can impact your overall financial situation.

The lenders, banks, and tax preparers are now in the dark when it comes to the IRS, no longer providing them with the much-needed “debt indicator.” This indicator is used to give them an advanced heads-up on whether your refund had any portions earmarked for offset. With this crucial information gone, it becomes increasingly more work for lenders to gauge your bottom line accurately. As a result, they now have to rely on alternative criteria such as your credit history or salary to decide on whether to grant you a loan.

My Refund Anticipation Loan status says “Your application has been received but has not been accepted at this time.” What’s going on?

An RAL is subject to the lender’s due diligence requirements as with any loan. The level of due diligence may vary depending on the lender, ranging from a simple credit check to a more extensive process, particularly for larger loan amounts. If it has been several days since your application, it is worth seeking an update from the lender or the tax preparer who facilitated the loan.

Got denied for an RAL, will I got my tax papers back?

You can expect to have your documents returned to you, but the timing may vary. Your tax preparer may have a specific schedule for sending out copies of tax returns, and yours might simply not have been sent out yet.
In the event that this scenario arises, it would be wise to provide the individual in question with a brief period of time before taking further action. Nonetheless, it is within your rights to insist on promptly returning your information forms if the tax preparer fails to complete the necessary preparations. To learn additional strategies for handling an uncooperative preparer, get in touch with your dedicated Tax Professional to help you from start to finish.

Refund Transfer Tax Returns (RT)

In today’s financial world, there exists a remarkable solution known as the refund transfer. This innovative deposit product provides clients with the opportunity to handle their preparation fees or accounting fees in a unique and convenient manner. Rather than burdening themselves with upfront payments, clients can now enjoy having their fees tax deducted directly from their tax refund. Let us explore further the fascinating world of refund transfers, alternatively referred to as bank products or settlement solutions.

In this mutually beneficial arrangement, both parties stand to gain. By utilizing this solution, clients can swiftly obtain their tax refunds from federal and state agencies without the inconvenience of waiting for them to arrive by mail or through their bank accounts. Consequently, your business can enjoy seamless payment fulfillment, ensuring that your fees are withheld with utmost ease and instilling confidence in your clients so that you can rest assured about timely and secure payment.

Exploring the functionality of refund transfers reveals a dynamic settlement option that boasts advantages for tax preparers and their clients. The intricate workings of this process warrant deeper examination.

Refund Transfer Tax Returns

How Does a Refund Transfer Tax Return Work?

In the realm of tax refunds, the refund transfer serves as a method of setting aside a portion of a client’s refund to cover the fees they have accrued. By adopting this approach, clients are rewarded with a swifter reception of their tax refund, albeit with a reduction corresponding to the withheld sum. This approach also proves advantageous for clients as it prevents them from directly encountering additional expenses concerning tax preparation services.

As an individual specializing in tax preparation, you can present clients with a valuable banking offering specifically designed for those who meet the necessary criteria. The eligibility for this particular solution is determined once you have completed the tax preparation process for a client and discovered that they are entitled to a tax refund.

Please remember that opting for a refund transfer is entirely up to you. As the tax preparer, conversing with your client about this option is important. Take the time to explain to them the workings of a refund transfer. It is crucial to maintain transparency throughout the discussion. Ensure your client knows they will be charged an extra fee if they utilize the bank product instead of paying for your services upfront. Such fees may include a refund transfer fee.

Check Points in Processing Refund Transfer Tax Return

Point 1. Client’s Approval

Prior to proceeding with processing a client’s tax return, it is imperative to thoroughly evaluate whether the client is eligible for a tax refund. Engaging in open and insightful conversations with clients, it is essential to provide them with comprehensive knowledge about refund transfers and the advantageous implications they hold for them.

Ensuring complete transparency regarding fees is crucial. It is imperative to gain the full support and understanding of the client prior to proceeding to the subsequent stage. Emphasize the invaluable convenience that awaits them.

When selecting a bank product, it is necessary for your client to complete and sign the Due Diligence forms as well as the bank product application documents.

Start by presenting your clients with the option to select how they would prefer to receive their refund – whether it be through a check, direct deposit, or debit card. As a certified preparer, you can extend your clients an advance on their return.

Additionally, your clients must understand that while a refund transfer may be slower than an IRS direct deposit, it offers the assurance of not having any fees deducted from their account.

Point 2: Provide a Refund Advance Tax Return

In order to meet their urgent requirements, clients often turn to hassle-free loan applications. As a tax preparer, you have the option to provide loans based on the refund amounts of your clients. Offering such advances instills a sense of trust and reliability amongst your clientele. Failing to provide this service may lead clients to explore alternate means and incur additional fees to access a portion of their refund in advance. It is important to note that while a refund transfer may not be quicker than an IRS direct deposit, it offers the assurance that funds will not be withheld and fees will not be deducted from their account.

Refund advances, also called these types of loans, provide taxpayers with a speedy way to access their refunds within a few hours or a couple of days instead of waiting for the customary refund disbursement process.

Point 3: Receiving a Tax Refund

Arranging the refund transfer involves using a refund settlement bank, which holds the authority to deduct fees from tax refunds provided by federal and state agencies. Once the fees have been deducted, the bank distributes the remaining funds to the taxpayer.

As the tax preparer, you play a vital role in facilitating the refund transfer for your clients. Additionally, you are responsible for overseeing the disbursement process of their tax refunds. Utilizing the UltimateTax software gives you access to a diverse set of refund options you can present to your clients.

In the event that a customer has opted for a refund advance, the financial institution will disburse the loan funds to the customer, regardless of whether or not the IRS has officially verified and processed the refund.

Point 4: Collect Fees

In the scenario above, it is important to acknowledge that the refund settlement bank plays a crucial role in deducting a certain proportion from the taxpayer’s refund, which the IRS provides. This deduction encompasses not only the bank’s charges but also the fee that is attributed to you as the tax preparer.

Regarding this service, there are several charges, typically elucidated as an additional fee for settling tax refunds. Comparable to any enterprise, numerous charges amalgamate into a single fee. Consider your electricity bill as an example; it encompasses various distinct charges to furnish you with service for your residence or business. As for you, the fee that holds significance is the fee charged by the tax preparer. It is the bank’s responsibility to allocate this fee to you. Typically, this transaction is carried out via direct deposit.

Risks with RAL or Rapid Tax Refund Loans

The concept of a Refund Anticipation Loan (RAL) revolves around allowing taxpayers to borrow money based on their projected income tax refund. While banks are the primary lenders for these loans, tax preparers and occasionally CPAs extend this financial service to their clients during tax return preparation.

Often referred to as an immediate or rapid tax refund, these loans may give the impression that they originate from the State or the Internal Revenue Service. Nonetheless, they are actually short-term loans that come with steep expenses. In many cases, the tax preparer and the lending institution receive commissions based on the calculated tax refund. As a result, the refund anticipation loan (RAL) is typically lower than the actual amount of the tax return refund.

In compliance with the regulations set forth by the CBA, Certified Public Accountants (CPAs) who provide Refund Anticipation Loans (RALs) are obligated to provide consumers with written disclosures. These disclosures must include the exact monetary compensation the CPA will receive for facilitating the loan. It is mandatory for these disclosures to be made prior to or during the referral process to the lender, as well as any other activities undertaken by the CPA to aid in the loan process.

When seeking assistance from a CPA for tax preparation and contemplating an RAL, it is advisable to collaborate closely with a tax professional. Please consult with a PriorTax dedicated Tax Professional about the process of filing for an RAL for free and the estimated time it takes for the State and the IRS to process and issue your complete income tax refund.

refund anticipation loan RAL

RAL is Paying to Borrow Money.

Non-bank lenders offer Refund Anticipation Loan (RALs), which are brief loans lasting between 7 to 14 days. These loans are backed by the borrower’s estimated tax refund. After deducting applicable fees, individuals who opt for RALs receive immediate cash equal to their expected tax refund.

Instead of taking an identical approach, individuals willingly accept a deal where they commit to paying an interest rate that, if calculated as an annual percentage rate (APR), could reach three digits. Typically, a financial institution establishes an exclusive account designated for the purpose of receiving the taxpayer’s refund from the Internal Revenue Service (IRS). Upon receipt of the refund, it is utilized for repaying the borrowed funds.

Hidden Risks by Getting Refund Anticipation Loan (RAL).

RALs, similar to other forms of loans, carry inherent risks that should be carefully considered. These risks include the possibility of facing a greater financial burden if your refund request is rejected, delayed, or falls short of your expectations. While RALs may seem manageable in the immediate future, their long-term implications can be financially crippling if unforeseen circumstances arise with your refund. Over time, this can result in accumulating significant debt that has a detrimental impact on your credit rating.

RAL (Refund Anticipation Loans) Wont Be Cheap

When acquiring an RAL, it is essential to be aware of its various associated fees. These fees typically encompass a loan application fee that can reach up to $100, a tax-preparation fee averaging around $40, a check-processing fee of approximately $20, a “peace of mind” guarantee provided by your tax preparer ensuring the refund specified on your tax form (often amounting to $100 or higher)

The fees associated with RALs can quickly add up, putting a dent in your wallet. When considering RALs, it is important to note that they often come with exorbitant interest rates. These rates usually begin at 36 percent or higher.

Refund Anticipation Loan (RAL) applications are available from various venues.

When consumers look for “instant refunds,” they often turn to businesses specializing in tax preparation and filing. However, it’s important to note that RALs, or refund anticipation loans, can also be found in various other establishments such as car dealerships, boat showrooms, and furniture and electronics stores.

Variations in RAL Filing

Instead of relying on costly RALs, it is wise to explore more affordable options available. You can save considerably by exercising patience and opting for the IRS to send your tax refund without any charges. When you e-file your tax return and choose direct deposit for your refund, you can experience a speedy IRS refund cycle that can be as short as 8 days.

By taking a short pause of just a few days or weeks, you have the opportunity to pocket hundreds of dollars in savings. If you still need to take advantage of it, think about initiating the process of setting up a checking or savings account. This will allow you to receive your advanced tax refund effortlessly through direct deposit.