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Cash Advance Income Tax Refund – Courtney Johnston is a senior editor who leads the Money team. With a passion for financial literacy and accessibility, she has ten years of experience as a freelance journalist covering policy, financial news, real estate and investments. A native of New Jersey, she holds a master’s degree in English literature and professional writing from the University of Indianapolis, where she was a graduate writing instructor.
You can get a refund for a portion of your expected tax refund, but most experts caution against these credits. Mykola Sosiukin/Getty
Cash Advance Income Tax Refund
Getting your refund can be the highlight of tax season for many people. But did you know that you can access this money now?
Tax Refund Solutions
This story is part of Tax 2023, which covers the best tax software, tax tips and everything you need to file your returns and track your refund.
Tax refund advance loans are now promoting the possibility of getting your refund, so you may want to take out a loan to get your money a little sooner. But experts warn against this move.
A tax refund advance is a type of loan that offers a portion of an expected tax refund weeks or months before the actual refund. It can feel overwhelming, especially if you’re still knee-deep in holiday shopping. While inflation makes everything more expensive this holiday season, it can be helpful to have extra funds at your disposal, but a high-interest tax refund is generally not the way to go.
“Many companies advertise 0% APR loans, but in reality they charge fees to make up for it, including tax fees that are collected on the initial filing,” says R. Weiss, a certified financial planner and founder of The Ways to Wealth website.
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What exactly is a tax refund advance and what does it mean for your finances? Below we explain everything you need to know about this unique loan.
A tax refund advance is a short-term loan that uses your pending tax return as collateral. You can usually borrow between $200 and $4,000 from December to February.
The interest rate on this type of loan is usually higher than other loans, with an annual interest rate of around 35%. For context, the average credit card APR is around 18%, while a personal loan APR is around 11.08%. Some tax filing services do not charge interest if you agree to pay your taxes, but that means you will pay a fee to pay your taxes.
“It’s not a standardized product,” Weiss said. “As such, fees, requirements, and APRs vary greatly from one company to another.” If you’re considering an advance tax refund, Weiss recommends reading the fine print and comparing alternatives.
Tax Refund Loans
You submit your tax refund advance request to the tax preparation company’s website. You may need to provide proof of income, W-2 (if applicable) and other financial records.
Tax refund advance loans do not have the same credit score requirements as other loans, and the amount you are approved for depends on the amount of your expected refund. So, even though the service advertises an advance of $3,000, that doesn’t mean you’re entitled to the full amount.
Some services allow you to get your money the same day or next day, but you’ll get your money within a few business days. If you have to file with a tax preparer, the amount you owe can be automatically deducted from your refund. Otherwise, you will have to repay the loan at the agreed time.
Because these credits are based on expected refunds, you may not get a refund when you pay your taxes in 2023, or your refund may be less than expected. If this happens, you will be responsible for repaying the loan in full (or the amount not covered by your refund) out of your own pocket.
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Second, Weiss said, even if 0% cash-back advances are advertised, they’re rarely given for free. There may be hidden fees, such as being asked to pay for tax filing services, which can be expensive. Also, some services have higher interest rates, making it a more expensive loan option.
Many leading tax companies offer tax refunds in advance. While tax season is upon us, both Jackson Hewitt and H&R Block are offering tax refund advances.
Jackson Hewitt has two refund advance loans: early refund and no fee refund. The early refund option allows you to withdraw up to $1,000 in December and $3,500 in January, but with a finance charge and a steep 34.22% increase. A no-fee cash advance loan is offered up to $3,500 and has a 0% APR, but it’s not available until January. You need to file your tax return with Jackson Hewitt.
H&R Block offers Emerald Advance®, which is a little different. It’s a $1,000 line of credit from now until January 7th. You don’t have to file your taxes with H&R Block, but if you do, you can use your refund to pay off your line of credit.
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Note: Be wary of payday lenders who may advertise similar loans at this time of year, as these companies often have high interest rates and fees. Payday loan interest rates in some states are as high as 391% to 521% on average. Personal finance experts recommend avoiding payday loans at all costs.
Your best bet is to wait until 2023 for your refund. Even simple miscalculations can lead to you expecting a higher refund and accidentally borrowing more money than you can repay when the refund hits your account.
A better loan is available if an emergency expense comes up, such as a medical bill, car repair, or other need. If you need quick financing, with better terms and lower interest rates than a tax refund advance, Weiss recommends taking out a personal loan.
You can consider a credit card as a last resort. Make sure you can pay off the balance in full within 30 days to avoid interest, late fees and other penalties.
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For more tax advice, read this story about key tax changes that could affect your refund next year, and learn about all the homeowner credits and deductions you can claim.Allison Martin By Allison Martin Arrow Personal Correct Contributor. Finance Allison Martin contributes to personal finance coverage including home loans, auto loans, and small business loans. Martin’s career began over 10 years ago as a digital content strategist and has since been featured in several leading publications, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com. A Certified Financial Educator (CFE), Martin also shares his financial knowledge and passion for entrepreneurship through interactive seminars and programs. LinkedIn Connect with Allison Martin on Linkedin
Edited by Aylea Wilkins Aylea WilkinsArrow West Editor, Student Loans Aylea Wilkins is an editor specializing in student loans. He previously worked on content editing for personal and home loans, auto, home and life insurance. He has been editing professionally for nearly ten years in a variety of fields, with a focus on helping people make confident financial and purchasing decisions with clear and unbiased information. Connect with Aylea Wilkins on LinkedIn Linkedin
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