Does H & R Block loan money based on the amount of refund from filed Federal Income Tax return?

Question

DOES THIS COMPANY OR ANY OTHER LOAN MONEY BASED ON FILED RETURNS REFUND?

Answer 1

They work with banks to give Refund Anticipation Loans based on your tax refund. However, if you have any type of Federal debt, such as delinquent student loans, child support, food stamps, etc, you will be flagged by the IRS & be ineligible for a loan. If you file your return electronically with direct deposit, you can get your refund within about 10 - 12 days without getting a loan & paying the crazy fees that are charged.

Answer 2

Refund anticipation loans are offered by many tax preparation companies through banks that they partner with. The way the process works is that the IRS acknowledges and accepts your return for processing, then the bank does a check for both federal debt indicators with the IRS and for bank debt indicators (an unpaid RAL or similar loan still outstanding). Bank approval is based on these results. If you apply, you are agreeing to have the IRS direct deposit your refund into the bank's account and then the bank withholds all the fees (including the tax preparation fees) and any loan amount and issues a check through the tax preparation company for the difference, if any. There are other bank products available as well including "instant loans." Fees for all of these go up the faster you get your money.

There are definitely benefits to these products in that they allow the customer to have their taxes prepared without paying anything up front, a faster refund, which can be important if the taxpayer has urgent bills to pay, etc. The drawback, of course, is the higher fees. The "interest rate" is substantially higher than a bank loan. I would point out though, that the finance charge is a flat fee and the interest rate is calculated based on the hypothetical scenario that the finance charge is charged approximately every 11 days (the average time it takes the IRS to process a refund). The reality is that the finance charge does not increase if the IRS takes longer to process the refund.

Any good taxpreparer will go over all options with the customer and help them with the best decision for them. The cheapest decision is always to pay your preparer directly and have the IRS send the refund directly to them.

Answer 3

RAL stands for Refund ANTICIPATION Loan.

It is a loan on your ANTICIPATED refund.

This is how it works for Block and, I assume, others as well.

The return is prepared. When the client sees refund, we expalin the way he can get his refund. If he chooses a RAL, he completes the loan application.

When the return is filed, the IRS sends the bank what they call a debt indicator. This tells the bank whether or not to give the client the loan. If its approved, the RAL check is printed in the office. If it is denied, the Block office will only get a message saying that it was denied. The bank will send a letter to the client explaining why it was denied.

By the way, in my district of H & R Block, we offer the settlement options (ways of getting the refund) from the least expensive to the most expensive.

1. e-file with either direct deposit (8 - 15 days) or check mailed (3 - 4 weeks) from IRS acceptance of return
2. Refund Anticipation Check (RAC) This is not a loan. The IRS deposits the refund in an account set up by our bank. All fees are withheld then a check for the balance is printed in the office.
3. RAL - explained above
4. Instant RAL (IRAL) Similar to RAL, but the bank makes a decision on the loan before the IRS get the return. More risk to bank therfore higher fees.

I know the fees are expensive, but H & R Block, Jackson Hewit and others wouldn't offer RALs if their clients didn't want them.

Answer 4

No, but they partner with one or more banks who do make the loans. You have to e-file through them to get the RAL. The rates are insanely high though, I've seen them as high as 2,633% based on a fee schedule posted here a few months ago by a Block employee.

Answer 5

If only Rene F was correct. The problem is the loan company WON'T know your return is subject to offset and will give you the loan anyway. When your return never comes, you will have to repay the loan with money you don't have. To be more accurate, the IRS doesn't know you own money either. They send ALL refunds to the Treasury Department's Financial Management Service (FMS). The FMS processes any offset and refunds whatever is left.

Answer 6

Their instant refund, also known as a refund anticipation loan, essentially makes a very short-term, very high-interest loan to you for the amount of your refund.