5 Reasons Why Your Tax Refund Anticipation Loan (RAL) Application May Have Been Rejected

As the final week of January arrives, taxpayers are eagerly preparing to open the doors of tax season. With anticipation of potential tax refunds, many individuals are eagerly awaiting the opportunity to file their taxes especially for RAL for some.

In order to ensure fairness in the tax system, certain taxpayers are not immediately eligible to receive a tax refund. According to the law, the Internal Revenue Service (IRS) is mandated to withhold refunds that are associated with the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until at least February 15.

Taking into account weekends and the President’s Day holiday, taxpayers can start receiving their EITC/ACTC related tax refunds at the end of February. Specifically, the last weekday of February marks the beginning of this process. It is important to note that the message on the IRS phone line predicts that these refunds will start arriving just after, during the initial week of March.

When it comes to tax season, many people rely on Refund Anticipation Loans (RAL) to help them bridge the gap between filing their tax returns and actually receiving their refunds. In certain instances, you may face rejection despite believing you have followed all the correct procedures and have not encountered any difficulties in previous years. If you have experienced the disappointment of being denied a loan related to tax refunds, it is possible that it was due to one of the following causes.

Make sure to locate your dedicated tax professional that will walk you through the RAL application from start to finish for free and minimize the chances for rejection.

ral tax rejection

1. You need better credit for RAL

It is important to remember that an RAL functions as a loan. Regardless of whether your tax refund is smaller than expected or if you are still waiting to receive a refund, the entire loan amount must be repaid. Your tax refund should be substantial enough to cover the loan repayment after considering interest rates, fees, and tax preparation costs.

Various factors can affect the total amount you receive from applying for RAL, such as modifications in tax legislation and offsets (which we will discuss later). The Internal Revenue Service (IRS) has discontinued the provision of a “debt indicator,” which previously informed lenders in advance if a portion of your refund would be allocated for offset purposes.

In light of these circumstances, determining your ultimate financial outcome becomes increasingly intricate while simultaneously increasing the lender’s propensity to consider alternative factors such as conducting a credit evaluation.

2. You Need to Have the Proper Documents for RAL Application

The deadline for banks, employers, and other entities to provide tax forms is usually January 31. Many individuals eager to prepare their taxes might be tempted to arrive at their tax preparer’s office with only their final paycheck.

In order for tax preparers to e-file their tax returns, it is crucial that they receive forms W-2, W-2G, and 1099-R, if applicable, as mandated by the IRS. Failing to provide these necessary documents may render your tax preparer unable to justify extending your loan.

3. You Made Too Much Money for RAL 

Let me clarify this for you, as I can understand your confusion. The majority of the substantial tax refund checks pertain to refundable tax credits such as the EITC and the ACTC. These credits are typically subject to a “completed phaseout amount,” which signifies the income threshold at or above which no credit can be claimed.

You may find yourself ineligible for tax credits if your income exceeds a certain threshold. It is important to keep in mind that your tax preparer is well aware of this. Consequently, if your income aligns differently from the requirements for such credits, you may receive a smaller tax refund that may not even be substantial enough to consider taking out a loan (considering the accompanying fees such as tax preparation fees).

4. You’re Maxed Out.

Despite being current on all your credit card payments and other financial responsibilities, having a limited credit history can still lead to being denied. When your credit cards and other loans have reached their maximum limit, a lender may hesitate to offer you more credit. To avoid uncertainty about your credit status, it is advisable to check your credit report at the present moment.

According to regulations, individuals can receive a complimentary copy of their credit report annually from the three primary credit reporting agencies. The process can be initiated through an online platform. To confirm their identity, individuals must furnish their full name, residential address, social security number, and date of birth.

5. You Needed to Make More Money.

At the heart of the “earned income tax credit” lies the concept of “earned income.” The credit calculation is directly tied to earned income, excluding unearned income. Consequently, individuals who depend on dividends and interest cannot benefit from this credit, as it is exclusive to those who earn a living through their work.

When you face a shortage of income, it is important to consider the potential impact on your eligibility for various tax benefits. Specifically, your ability to claim refundable tax credits may be restricted. Remember, your tax preparer is well aware of this situation, and failing to meet the required income threshold could lead to a denial.

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