Millions of people, including families that claim the (EITC) Earned Income Tax Credit or the Additional Child Tax Credit, may face a delay in receiving their 2017 income tax refunds. This is being caused by the latest IRS guidelines that are intended to combat fraud and theft in the system. In an effort to help low income families get access to the money they need, many companies are offering interest free loans to help fill the gap.
The nation’s largest provider, H&R Block, is offering a refund loan option to its customers. Other companies that are participating include Jackson Hewitt as well as Liberty. Each of them will of course offering their own terms and conditions (as well as dollar amounts) to borrowers, but the fact is that households may be able to get a loan on their expected refund. Not only may the interest rate be set at zero percent (at least for a defined period of time), but all origination fees may be waived as well.
According to the Internal Revenue Services (IRS), as many as 3 million taxpayers will have their refunds delayed until February 15. Even if you file early it may still take time for the check to be mailed to you or the funds deposited into your bank account. This delay may impact the “working poor” more so than many other households.
With many families that receive the EITC living paycheck to paycheck, and depending on their income tax refunds to pay the bills, any delay in the process can make a huge difference in their monthly budget. Maybe they were expected the refund to pay for their food for the month or pay for a car repair. This is a good example of how may want to consider using one of these companies, as the short term loan may help during a hardship.
Note anytime you borrow money, there is always a risk. It is imperative to only use the funds for critical needs that were expected to be paid by the refund. The federal government refund money should not be used to pay for unnecessary costs.
It is also critical that you provide your tax preparation company with all of your paperwork, and that the filing was done truthfully. The reason being is that since the repayment of the loan is sent electronically straight from the filers bank account to the preparation company, if that money does not come through from the federal government than the customer must still pay back the tax preparation company.
Why are the big 3 income tax preparation companies offering loans?
While it sounds to good to be true, companies such as H&R Black do have a reason to offering this option to their customers. It resolves around those organizations making money when they do the filing of your state and federal taxes. So while they will not make any money on issuing the loan, they will collect their “standard” fees for processing the paperwork of the 2017 income tax return.
The fact is the industry is more competitive than ever in 2017. Consumers have many choices available to them when they are preparing/filing their taxes. Many people are turning to Turbo Tax or some other tool. So the big 3 providers are trying to draw more people in the door.
While they will not make any money on the interest and fee free refund loans they issue, they will make money by charging for the actual preparation of the return itself. So Liberty, Jackson, and H&R are just trying to get new customers and make money off of them as a regular course of business.
In effect these companies are trying to take “advantage” of these latest IRS fraud combating measures to profit on their own behalf. They figure that by offering interest free loans for people filing their 2017 returns, this will bring more attention to their business and hopefully bring people in the door. And of course as a side benefit it will assist those families that are expecting a timely return.
However low to moderate income families have other options available to them to file their return. They do not need to turn to the “big 3”. Most of the families that receive EITC or Child Tax Credits will be able to qualify for free income tax preparation from the federal government. In fact, if your household income is less than about $64,000 you can use the IRS Free File program. This means you do not even need to pay a preparation company any money for their services.