It's tax time, and we have all seen the ads by tax preparation companies offering you the opportunity to get your tax refund now. But the New York State Department of Taxation and Finance as well as the state Consumer Protection Board warn it will cost you. The agencies says there are cheaper or free alternatives to these Refund Anticipation Loans and Refund Anticipation Checks. Here is the entire news release:
What is a RAL?
A RAL is not a quick, fast or instant refund. Instead, it is a high-interest bank loan secured by the taxpayer's anticipated federal refund. While the promise of quick cash can be tempting, RALs are expensive, as some lenders charge substantial fees and very high interest rates that reduce the amount of a refund.
According to a recent study of these products done by the U.S. Department of the Treasury for the 2008 tax year, approximately 4% of New York taxpayers received RALs and 8% received RACs. This is lower than the national average.
Fortunately, there are fast and inexpensive ways to get both federal and state tax refunds:
Taxpayers who file electronically and use direct deposit will get their federal and State tax refunds the quickest Taxpayers without bank accounts can get fast refunds by filing electronically and having their refunds deposited to a prepaid debit or payroll card which can be used for everyday financial transactions. The card can be an existing prepaid payroll or debit card that the taxpayer already has, or a new MyAccountCard issued by the U.S. Treasury's financial agent. MyAccountCard is part of a debit card pilot program being conducted by the IRS this filing season. MyAccountCards are only available to those who received an offer letter from the U.S. Treasury Department. What is a RAC?
RACs are marketed to taxpayers who don't have bank accounts and/or who do not have the ability to pay tax preparation fees up front. A temporary bank account is established by a tax preparer on behalf of the taxpayer so that a tax refund check can be direct-deposited. After the refund check is deposited into the temporary account and the preparation fees are deducted by the preparer, the institution then issues a check to the taxpayer and the account is closed.
While a RAC is generally cheaper than a RAL, taxpayers would be wiser to open a bank account of their own and arrange to have tax refunds direct-deposited.
Consumer Bill of Rights Regarding Tax Preparers
New York's Consumer Bill of Rights Regarding Tax Preparers prohibits tax preparers from advertising RALs as refunds. For example, advertising a RAL as an instant refund is prohibited. Additionally, any advertisement by a tax preparer that mentions RALs must conspicuously state that a RAL is, in fact, a loan and that a fee or interest will be charged by the lending institution. The lending institution must be identified in the advertisement.
In addition, before a taxpayer enters into a RAL, the tax preparer facilitating the loan must provide a disclosure statement to the taxpayer, in writing and in at least 14-point type, setting forth key information that explains:
A taxpayer isn't required to take a RAL in order to receive a tax refund The amount of fees and interest charged for a RAL The amount the taxpayer will receive after the fees and interest are deducted The annual percentage rate that will be charged The amount of the refund if the taxpayer doesn't take a RAL The anticipated date a refund will be received if the taxpayer doesn't take a RAL Before a taxpayer enters into a RAC agreement, the tax preparer must provide a written disclosure statement that explains:
A taxpayer isn't required to take a RAC in order to receive a tax refund The amount of fees a taxpayer will pay for a RAC For more information about filing your taxes, visit the Tax Department's website at www.tax.ny.gov or call 518-457-1981. For more information about scams, identity theft and other consumer issues, visit the Consumer Protection Board's website at www.nysconsumer.gov or call 1-800-697-1220.