If you need cash now while waiting for your tax refund, some tax preparation services, including H&R Block and Jackson Hewitt, are offering 0% interest loans with no finance charges. These are essentially free short-term loans you can use now to cover your current bills.
In some cases, you can get the money within 24 hours. The loan is secured by your expected tax refund, and the loan amount is deducted from your refund after it’s issued. To be eligible, you must have your taxes prepared in an office, not online, and typically that means you’ll pay a tax preparation fee. You must be due a refund of at least a certain amount, which varies by company.
Anyone can apply for the no-interest tax refund loans, but they’re especially attractive to early filers who claim either the Earned Income Tax Credit or the Additional Child Tax Credit. About 30 million taxpayers claim these credits, and half of those file early, estimates H&R Block. The company’s bank partner lent about $700 million in refund loans in the 2017 tax season.
Many low- or moderate-income taxpayers who claim the EITC or ACTC count on their refunds for immediate expenses, but because of the Protecting Americans From Tax Hikes Act, which was passed in 2015, refunds for those early filers likely won’t hit bank accounts and debit cards until Feb. 27 at the earliest, factoring in processing time and the Presidents Day holiday.
If you need extra cash before then, a free tax refund loan may help, as long as you don’t pay too much in related fees, like tax preparation costs or fees for a prepaid card. Think of those other fees as the actual cost of the “free” loan when deciding whether to apply for one.
Beware, too, of tax preparers who charge add-ons like “application fees,” “e-filing fees” or “technology fees,” the National Consumer Law Center warns. Report any problems with tax refund loans to the Consumer Financial Protection Bureau.
Two tax refund loan options
FROM JACKSON HEWITT
Here are details of this no-interest loan, which is called Express Refund Advance and issued by Metabank:
Minimum tax refund amount: $500
Loan amounts: $100, $200, $500, $750, $1,000 or $3,200
Time to funding: Within minutes up to 24 hours if you choose to have the money loaded onto an American Express Serve prepaid debit card; if you want the loan deposited directly to a bank account, it will take one to three business days.
Requirements: You must have your taxes prepared at a Jackson Hewitt office, not online.
Average tax preparation fee: Jackson Hewitt declined to state
Deadline: The loan is being offered at participating locations until April 17.
FROM H&R BLOCK
Here are details of H&R Block’s no-interest loan, which is issued by BofI Federal Bank:
Minimum tax refund amount: $1,000
Loan amounts: $500, $750, $1,250 or $3,000
Time to funding: Same day, in most cases; money is loaded onto an H&R Block Emerald Prepaid MasterCard, which allows you to make a one-time transfer of funds by check or ACH transfer from your card account for no fee.
Requirements: You must have your taxes prepared at an H&R Block office, not online.
Average tax preparation fee: About $220, though the fee varies depending on the complexity of the tax return.
Deadline: The Refund Advance is being offered at participating H&R Block locations until Feb. 28.
This ‘free’ loan can still cost you
You may remember past versions of quick tax-time loans that came with notoriously high fees. Those were regulated out of existence in 2012.
The main worry with current versions of 0% tax refund loans is how much you’ll pay in tax preparation fees to be eligible for the loan. Tax preparation services can range from zero to hundreds of dollars, depending on the complexity of the return. For example, services completed at a Jackson Hewitt office start at $48 for a 1040EZ with two W-2s.
Jackson Hewitt’s free 1040EZ filing is only available online, which makes customers who go that route ineligible for Express Refund Advance loans.
H&R Block offers free tax preparation for customers filing a simple 1040EZ, both in-house and online, until Feb. 28. To apply for a loan, you must meet eligibility requirements and then submit an application to BofI Federal Bank, which will approve or deny the application based on its own underwriting requirements.
Low- to moderate-income filers in particular have many ways to file their taxes for free. You can get IRS Free File software, available to those with incomes of $66,000 or less, or seek out volunteer programs from organizations like AARP, the Accounting Aid Society and United Way.
Running the numbers
If you file a Form 1040EZ in a tax services office for free, then securing a tax refund loan poses virtually no risk and zero cost. But say you’re charged Jackson Hewitt’s $48 fee to be eligible for a $500 tax refund loan that lasts until your refund arrives a month later. Consider that fee equivalent to an annual percentage rate of 115% for the loan. In other words, the loan is not free when you factor in the cost of tax services.
If your tax prep bill is $220, that $500 loan over one month could be viewed as having an APR equivalent to 528%. That’s even higher than the median 391% APR charged by notoriously expensive payday lenders, according to CFPB findings.
A significantly cheaper option would be to seek a payday alternative loan from a credit union. PALs were created in 2010 and are regulated by the National Credit Union Administration. They have a maximum APR of 28%, with application fees capped at $20.
In addition to tax preparation fees, tax refund loans may also come with prepaid debit card fees. H&R Block, for example, provides its loans on the Emerald Prepaid MasterCard. Though the card itself is free, and it’s free to make purchases with it, there are costs associated with some transactions.
Mobile or online bill pay with the Emerald card costs 95 cents per transaction, with extra costs for expedited payments. Withdrawals at Allpoint ATMs in CVS and 7-Eleven stores and MoneyPass ATMs are free, but if you use other ATMs, you’ll pay $3 — and there may be additional fees from the ATM’s owner. If your ATM transaction is declined, that’s a $1.50 fee, and if you don’t use the card for two months, you’ll be charged an inactivity fee of $4.95 a month.
Similarly, Jackson Hewitt puts your tax refund loan money on an American Express Serve prepaid debit card, which allows free withdrawals at MoneyPass machines but charges a $3.50 fee elsewhere.