Each filing season, millions of taxpayers make a claim for their federal refund. With countless tax preparers advertising immediate turnaround on refunds, the question is, just how long does it take the IRS to process a refund?
Does the IRS offer a fast-track program whereby a taxpayer can get their refund in less than a week, or a few days, or even within 24 hours?
Companies inundate tax filers with boasts about how quickly a taxpayer can walk out of their offices with their refunds, but taxpayers should be aware that the IRS does not offer any such product as a 24-hour refund. Nor can a preparer expedite the standard IRS processing time.
So how can preparers offer these immediate refunds?
Because the amount you are getting is not your actual refund, it is something called a Refund Anticipation Loan. And there are a number of potential discrepancies in these programs that one ought to be aware of.
The IRS has never deviated from the standard time it takes to process a tax return. A refund from a paper return, sent in the mail, can take up to 8 weeks. An electronically filed return may take up to three weeks. If you have amended a previous year tax return to claim a refund, the processing time is 8 to 12 weeks.
Adding the option to have your refund directly deposited shaves about a week off of these timeframes; e-filed returns with direct deposits can even be processed by the IRS in as little as 10 days.
Anything promised earlier than this is a Refund Anticipation Loan (RAL). Simply put, your tax prep company is loaning you a sum of money. They in turn are reimbursed by directing your IRS refund back to them, which they then keep.
Here’s a problem with RALs – If your refund is held by the IRS for examination for any reason, or offset to another federal or state debt, then you not only will owe the tax preparation company the money back, but you also may still owe the IRS or your state.
In a December 2010 article on Financial Products, the IRS makes clear there “are no guarantees that the Department of the Treasury deposits refunds within a specified time or in their entirety. For example, it may delay a refund due to processing problems or, it may offset some or all of the refund. The Department of the Treasury is not liable for any loss suffered by taxpayers, Providers or financial institutions resulting from reduced refunds or not honored Direct Deposits, causing it to issue refunds by check.”
Another problem with RALs – They can cost quite a bit. Why pay a company to do something you can just as easily do yourself for free? If your income is over a certain threshold, you can still e-file through the IRS web site for a small fee. Every year, the IRS partners with reputable dot com companies for free tax preparation and filing through the IRS web site.
Now, if you have a complex tax return then perhaps a qualified preparer is the way to go. But a standard 1040 form can be prepared online and filed directly through the IRS home page. Check out the links for FreeFile and IRS E-File at irs.gov.
Unless you need access to your refund immediately, then in almost all cases, you are much better served waiting the additional week or two and saving yourself hundreds of dollars in potential filing and refund loan fees.
If you do decide to apply for a RAL, make sure you have been given a sufficient explanation of the terms of the loan by your preparer. Find out if they offer any type of guarantee or what may happen if the IRS holds your refund. Does the preparer charge any penalty or interest if your refund is delayed?
Before applying for a RAL, be sure everything claimed on your tax return is proper, that all income sources have been included, and that you have no outstanding federal or state debts.
Check out the IRS article on Refund Anticipation Loans and educate yourself on what the return preparer or provider must advise you of if you decide to pursue a RAL.
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