This year’s TIWYB #1 Tax Tip:
Stay away from “RAC”s!
Marketing of “Refund Advance Checks” will be at an all time high. And equally at an all time high? The number of people who think these products are 0% loans without any fees or penalties.
The truth is buried in the fine print. You generally will be pushed into opening up a separate account where the tax refund anticipation check will be deposited into. The fee just for that deposit is $35.
If you elect to place that amount on a card that the issuer provides you, then you are dealing with a host of other fees such as $3 ATM use charges (one charge on the front end and another on the back end), fees simply to check balances and more.
These “advances” are provided in an amount of $500, $750 or $1,250 amounts to your account which triggers at minimum, the $35 fee for deposit. The account then deducts the advance from the tax refund that is forwarded to the account as well, generally within a month.
If you take a $1,250 amount and apply a $35 fee payable for a month of using that money, you’re looking at an annualized amount of 40% interest.
But it gets worse. Maybe I shouldn’t tell you this but if you opted for the lower $500 amount, you’re still going to have to pay that $35 fee. Mathematically that equates to an 85% APR on that money.
Refund Anticipation LOANS have been made illegal. But they have been replaced by Refund Anticipation CHECKs. The latter is what we’ve been discussing here.
You’re still getting screwed, but now you you are forced to open an account that makes you a candidate for a list of ongoing fees when you inevitably slip up with use of that account.
And the reason they know they can screw you is because the IRS just notified everyone that those who claim the Earned income Tax Credit as well as the Additional Child Tax Credit will likely have their tax returns held unprocessed until February 15th. This means that many won’t be receiving their refunds until February 27th at the earliest this year.
But at the end of the day, just look at all the complaints about the H&R Block version of this here: https://www.consumeraffairs.com/finance/hr_block_ral.html
This has to stop.