Tax Department And Consumer Protection Board Urge Taxpayers To Consider Alternatives To Costly Refund Anticipation Loans
Albany, New york February 22, 2011 – It’s tax time, and many New Yorkers will try to collect their refunds as quickly as possible. Some will consider a refund anticipation loan (RAL) or refund anticipation check (RAC) to speed up the process. However, the New York State Department of Taxation and Finance and the New York State Consumer Protection Board are urging taxpayers to consider lower-cost or free alternatives to receiving federal tax refunds.
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 refund 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.