Don’t fall for “instant tax refunds”

By Rosemary Heins, University of Minnesota Extension

ST. PAUL, Minn. (3/17/2008) — Some tax preparation companies advertise that they can get you your tax refund money within a day from when you file your return with them. These ‘instant’ or ‘fast’ tax refunds are actually expensive, high interest loans.

This practice has cost American taxpayers more than $1 billion dollars each year. It’s money that could be better used to pay utility bills, put food on the table, pay off debt or put into savings. It means less of the tax refund is received by the tax payer.

In the event the IRS denies or reduces a consumer’s tax refund, the consumer may not receive a refund, but will now owe the refund loan amount including interest. Consumers unable to pay off the loan promptly may be subjected to debt collection and a damaged credit rating.

Some consumers obtain the “refund anticipation loans” thinking it will take a long time for the IRS or the Minnesota Department of Revenue to process their return. Tax returns submitted electronically may have refunds returned to the consumer within days. Paper tax returns submitted by mail are slower.

Don’t have a preparer rush you into taking out an ‘instant refund’ loan. It’s a decision you may regret later. If you need a loan, shop around for the best terms and be sure to factor the payments into your budget.

Any use of this article must include the byline or following credit line:
Rosemary Heins is a family resource management educator with University of Minnesota Extension.

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