If you file your taxes electronically and allow the government to deposit your refund directly into your checking account, the Internal Revenue Service (IRS) promises to refund your money within 21 days. Before 2012, you could get the money sooner through a refund anticipation loan (RAL) offered by most tax preparers. Major lenders don’t offer RALs anymore, and any loan you take out to get your refund money early is based on your credit history and income, not your income tax refund. Past due state taxes will only affect the decision on your loan to the extent that the back taxes appear as a collections item on your credit report.
Here’s some information from an accountant in Jamestown, ND about what you need to know.
If you owe back taxes, any refund you’re due from this year’s tax return automatically goes toward paying your back taxes. If you owe back taxes to your state, the state can put a lien on your federal refund. If you owe federal back taxes, the IRS can 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
Prior to 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 distributed any remaining balance to you. However, 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 and 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 until you receive your refund. You don’t have to pay anything out of pocket until the government sends your refund. A refund anticipation check doesn’t provide you with money any sooner than when the government provides it to you. It 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, levy your bank accounts, put a lien on your home and seize other assets. It’s important to not let the debt pile up, but it’s equally important that you not dig yourself into a deeper hole by taking on high interest loans to pay off your back taxes.
We always recommend getting in touch with a specialized tax resolution professional to help avoid the harsh penalties and interest that accrue on back taxes. It’s far easier to navigate towards tax resolution if you have a professional working with you. If you’d like to schedule a no-cost confidential tax relief consultation with a trusted accountant in Jamestown, ND, contact Craig S. Hanson, CPA at www.craighansoncpa.com.