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What is a Tax Return Loan?

By Florence J. Tipton
Updated Feb 15, 2024
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A tax return loan is a cash advance offered to taxpayers who want to receive a tax refund quickly. With a tax return loan, a person does not have to wait the standard time it normally takes to receive a refund from the local or regional tax authority. Instead, a person may receive a refund within 24 to 48 hours — usually from a tax preparation company. The tax preparation company usually charges a fee to issue the tax return loan and accepts the refund from the tax authority as repayment of the loan.

Typically, there are certain requirements that a taxpayer must meet to qualify for a tax return loan. First, the loan is not available to all tax return filers. The amount of the loan may also determine whether a taxpayer qualifies to receive the cash advance. Most taxpayers complete an application for the loan that is either approved or denied. Other requirements may vary depending on the criteria set by a tax preparation service.

Generally, the tax return loan is paid by either a paper check or an electronic transaction. After approval of a tax return anticipation loan, fees are deducted from the refund and the taxpayer receives the balance. The full refund amount goes directly to the tax preparation service to repay the loan. The service usually receives payment after the tax authority processes the tax return.

Several types of fees are usually associated with a tax return loan. Some tax preparation services charge a fee to prepare a tax return; others might waive the fee if the taxpayer agrees to receive the cash advance via an electronic payment. A loan origination fee might be added to cover the administrative costs of processing the payment quickly. Additional fees may also include finance charges issued by the bank that approves the advance.

There might be a few advantages to receiving a cash advance for a tax refund. The taxpayer receives the refund quicker than the standard period of filing the return directly with the tax authority. This eliminates a longer waiting period if funds are needed to cover an emergency or planned major purchase. Another advantage is having a preparation service prepare the tax return.

One disadvantage to receiving a tax return loan is the associated fees. The fees reduce the amount of the refund. This means that the taxpayer receives less money than would otherwise be received if he or she had waited until the tax authority processed the return. The fees are usually nonrefundable. If the taxpayer has a tax liability, he or she is still required to pay the fees even if the anticipated refund is not received.

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