Attention when requesting a tax refund: Here's what you need to do to avoid paying hidden fees

Who wouldn’t welcome a tax refund? It’s probably the best part of taxes. However, the eagerness to get your money as quickly as possible can sometimes result in paying a percentage of what you’re owed in hidden fees.

According to a report released this November by the Treasury Inspector General for Tax Administration (TIGTA), 16% of Americans who filed for a 2023 tax refund ended up paying fees. In total, these fees amounted to over $824 million. All of them used tax preparation products like a refund anticipation check or a refund anticipation loan.

READ ALSO: What do Americans spend most of their tax refunds on?

What are refund anticipation loans and checks?

Some companies that specialize in assisting taxpayers during tax season offer products called refund anticipation checks (RACs) and refund anticipation loans (RALs). These products advance the amount of your tax refund to you.

These products are appealing to those who don’t want to wait for the IRS to process and deposit their refunds—a process that can take weeks. However, in some cases, these companies may charge a fee that isn’t clearly disclosed.

The TIGTA reports that 96% of taxpayers who paid fees for their tax returns used a RAC, while the remaining 4% used a RAL. The report states that, “In some instances, fees and cost information for these products were not clearly advertised, and it required reading the fine print or going through multiple pages to find some cost information.”

In a review of the websites of the seven major tax return preparer companies, the agency concluded that while the products “are largely complying with applicable guidance, not all information was clearly available for consumers.”

How much do advance tax refund loans and checks charge in fees?

According to the TIGTA report, for the 2024 tax season, the average RAC fee is $40, with options ranging between $25 and $55 depending on the provider. On average, this represents 1% of the total refund.

For refund anticipation loans, the report states, “Interest rates and terms vary between providers,” but three of the top seven providers reviewed “charged around 35 percent interest on these loans.”

Using these products isn’t inherently bad, but it’s always advisable to ask the provider about any hidden fees and carefully read the fine print to avoid surprises.

As an alternative, the Consumer Financial Protection Bureau (CFPB) reminds taxpayers that there are several ways to get free assistance from IRS-certified preparers. They also recommend being patient and waiting to save money, as “Many taxpayers get their refunds from the IRS in 10 to 21 days.”

READ ALSO: What happens if your tax refund is less than what you expected?

*This article was written in Spanish and translated with the help of AI.

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