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RAPID
TAX REFUNDS
The following information is
summarized from the websites of the Better
Business Bureau of Connecticut, Consumer
Federation of America and the National Consumer
Law Center:
http://ct.bbb.org/article/connecticut-better-business-bureau-cautions-consumers-to-consider-costs-of-income-tax-refund-anticipation-loans-8767
http://www.nclc.org/issues/refund-anticipation-loans.html
www.consumerfed.org/pdfs/RAL_2006_Early_info.pdf
WHAT ARE RAPID TAX REFUNDS?
Rapid refunds are also known as refund
anticipation loans (RAL). They are offered by
some commercial tax preparation firms and banks
to people who want to receive a fast rapid
refund.
WHAT ARE THE RISKS IN GETTING A RAPID REFUND?
Rapid or “instant” refunds are really loans. In
order to receive their money early, consumers
are charged a loan fee ranging from $29 to $120.
The Annual Percentage Rate (APR) on these loans
can range from 40% to over 700%. Electronic
filing fees and fees for tax preparers can also
be added which can end up costing you 10% or
more of your total tax refund. In addition,
since the refunds are loans, they must be repaid
if the Internal Revenue Service (IRS) delays or
denies you a refund or gives a refund that is
smaller than you expected.
HOW TO AVOID PAYING THE HIGH
COST OF A RAPID REFUND
To avoid paying unnecessary fees for a rapid
refund, consider any of the following options:
- Have taxes done for free at
Volunteer Income Tax Assistance (VITA) or
Tax-Aide sites. Information on free tax
preparation sites open in Connecticut during
the tax season can be found by calling 2-1-1,
or go to Tax
Preparation Assistance.
- Open a bank deposit account –
this will allow you to receive refunds by
direct deposit.*
- Don’t go to check cashers –
extra fees are charged to cash tax refund
checks.
- File tax returns by E-File –
this can speed up your tax refund,
particularly if the IRS deposits your refund
directly into your bank account.
- Delay paying bills or ask for
extensions, if possible, to avoid adding the
cost of RAL fees onto current debts.
* People who receive a monthly
federal government check (e.g. Social Security,
SSI, Veterans benefit) may be able to open a
free bank account. See paper on this subject:
“Electronic Transfer Account”.
TO FIND PROVIDERS IN
CONNECTICUT'S COMMUNITY RESOURCES DATABASE:
Search by service name: Tax
Preparation Assistance
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SOURCES: Better
Business Bureau of Connecticut, Consumer
Federation of America, and the National
Consumer Law Center websites
PREPARED BY: 211/pt
CONTENT LAST REVIEWED: January2012
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