Debt and Taxes: 4 Things to Know About Refund Anticipation Loans
People don’t often think of tax preparation companies such as H&R Block and Jackson Hewitt as loansharks.
But thanks to “Refund Anticipation Loans” (also known as “Refund Anticipation Checks”), that’s exactly the role those tax preparation companies take on. How?
- Many tax preparation companies act like payday loan companies. They give you money now in exchange for when your tax refund arrives later. They are essentially loaning you money. Often they do this as a way to give people without a bank account a way to “cash” the refund check. However…
- The check you receive from the tax preparation company is NOT your tax refund. It is a loan from the tax preparation company. The real tax refund arrives later and is kept by the tax preparation company. This wouldn’t be so bad, except…
- The amount you receive now is significantly less than the amount of the refund check that the IRS would send you. In fact, if you look at the amount that you give up, it may actually be equivalent to an interest rate of 100% or more.
- This is particularly common among taxpayers who benefit from the Earned Income Tax Credit, a system set up to essentially give money to people at or below the poverty line. (Ironically, to receive this benefit, many taxpayers end up giving a substantial portion of their tax credit to tax preparation companies.)
If you have questions about taxes as they relate to your debt, and especially if you have questions about taxes and bankruptcy, please contact an experienced Freedom Law Firm bankruptcy attorney for a free initial consultation by calling 1-800-LAWYER.