If you use a paid preparer, beware of Refund Anticipation and Advance Loans (RAL) and Refund Anticipation Checks (RAC).
Refund Anticipation or Advance Loan (RAL)
A Refund Anticipation or Advance Loan (RAL) is a short-term loan. The loan amount is a portion of your estimated tax refund. The loan term is usually less than one month — the anticipated time for the tax preparer to receive your full refund. The tax preparer will deduct the loan amount (your loan payment) and any interest or fees from your full refund, then give you any remaining money. It is not an "instant refund."
It’s illegal for a tax preparer to disguise an RAL as an:
- Instant refund
- Rapid refund
- Express refund
- Fast cash
- PreFund
- Any other similar term that hides the fact that an RAL is a loan
Taking out a RAL is optional. Tax preparers cannot require you to take out a RAL.
Refund Anticipation Check (RAC)
A Refund Anticipation Check (RAC), or Refund Transfer, is a deferred payment product that lets you delay payment of tax preparation fees. Money will be taken out of your refund to pay the fees you owe.
If you use the RAC or Refund Transfer payment option, typically the tax preparer will set up a temporary bank account in your name into which your refund will be directly deposited. The tax preparer deducts tax preparation fees and any extra fees for using a RAC or Refund Transfer from your refund, then gives the remaining money to you. If your refund does not cover all of the tax preparation fees, some preparers may use a third-party debt collection business to collect any remaining balance.
