Understanding Income Tax Refund Loans and Back Taxes

Do you file your taxes electronically? If you do, and the government deposits your refund directly into your checking account, the IRS will refund your money within 21 days. Before 2012, you could receive your money sooner with a refund anticipation loan (RAL) offered by most tax preparers. However, major lenders don’t offer RALs anymore. Loans you take out to get your refund money early is based on your credit history and income; they’re not based on your income tax refund. Past due state taxes will hardly affect the decision on your loan. Your back taxes will appear as a collections item on your credit report.

Back Taxes

If you owe back taxes, your refund from this year’s tax return automatically goes toward paying your back taxes. At the same time, if you owe state back taxes, the state can put a lien on your federal refund. When it comes to federal back taxes, the IRS may put a lien on your state refund. The government also can place a lien on your tax refund if you’re past due on student loans… or if you’re behind on child support payments.

Refund Anticipation Loans

Before 2012, you could get a refund anticipation loan through your tax preparer and receive the funds in about a day. When the tax preparer received your refund, it paid off the loan and you received the remainder balance. At some point, the government determined that RAL practices violated federal lending regulations and state laws, and the IRS changed its policy.

Getting Your Money Earlier

Some companies market short-term “payday loans” to consumers as a replacement for RALs. Consumers might not realize that the loans don’t consider the size of your refund or whether you owe back taxes. Lenders follow standard lending practices – they consider your credit history and your annual income. To get approved for a loan, some lenders require that you have your paycheck direct deposited into your account. The company makes the loan due on a day you get paid, and it electronically debits your account for the balance of the loan before the bank even opens its doors for business.

Refund Anticipation Check 

Some tax preparers charge a fee for a program called a refund anticipation check. A tax preparer charges a tax preparation fee to prepare and file your taxes. When you’re due a refund, the preparer loans you the money for the tax preparation fee. The government will send your refund, and then you will need to pay any out-of-pocket expenses. A refund anticipation check doesn’t provide you with money any sooner than when the government provides it to you. This simply defers your tax preparation fee until you receive your refund.

What if you owe back taxes and need to pay them?

If you happen to owe back taxes, the IRS can garnish your paycheck and levy your bank accounts. They can also put a lien on your home and seize other assets. It’s important to not let the debt pile on. It’s equally important that you don’t take on high interest loans to pay off your back taxes. This will only dig your hole deeper.

Get in touch with your Enrolled Agent to help avoid the harsh penalties and interest that accrued on your back taxes. If you need an expert tax resolution professional, reach out to us and we’ll schedule a no-obligation confidential consultation. Jeffrey Schneider, EA, CTRS will explain your options and help to permanently resolve your tax problem.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent and a Certified Tax Resolution Specialist.
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Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

The book is available in paperback and ebook on https://Amazon.com
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For more on SFS Tax Problem Solutions, visit: http://sfstaxproblemsolutions.com/
For more on SFS Tax & Accounting Services, visit https://sfstaxacct.com/
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