Big tax groups like H&R Block and Jackson Hewitt believe consumers who face additional delays in February for a cash refund will want an advance. The catch: you will have to pay to pay your taxes.
It’s going to be tough to turn on the TV, walk past a tax prep storefront, or walk into a Walmart at the start of this tax season and not be inundated with arguments for loans tied to repayment at 0. %.
H&R Block, Jackson Hewitt and others are battling for market share and trying to attract customers who might otherwise turn to an online competitor, like TurboTax. The strategy is to massively market easy money loans for a limited time – usually until February – to struggling filers who benefit from the earned income tax credit, but who now face additional delays for a prepayment.
Consumers who could receive refunds of $4,000 or more through the earned income tax credit are now being told not to expect a refund until February 27, a few weeks later than usual.
Experts say first-time filers should still file in January and February, as usual, because the wait could prolong the process even further.
The 0% slots come at a time when working poor and moderate-income families are particularly vulnerable, as they look to advance tax refunds to cover winter heating bills and other expenses.
“They’re expecting refunds at some point,” said Chi Chi Wu, an attorney with the National Consumer Law Center. “These are families who can use every penny they can get.”
But the rules have changed this tax season, thanks to a congressional push to crack down on fraud and scammers who steal IDs to file bogus tax returns that tap into generous tax credits, like the EITC, to rip off the federal government.
H&R Block estimates that some 15 million filers who receive the EITC and often file early could experience delays.
“With this client, there are real cash needs,” said William Cobb, CEO of H&R Block.
On Monday, H&R Block rolled out its Refund Advance product, which is billed as a 0% interest loan with no finance charges.
The H&R Block Tax Loan will be an initial amount of $500, $750 or $1,250, depending on client eligibility.
The repayment advance is offered by H&R Block through a partnership with MetaBank, a federal savings bank based in Sioux Falls, SD, which can provide up to $1.6 billion in such loans to customers. from H&R Block.
The loan itself is available if the filer is expected to have a tax refund of at least $1,000. The H&R Block loan is only available at H&R Block offices, not online.
“We are determined to attract more customers,” Cobb said. “It’s about as consumer friendly as it gets.”
Refunds will be later
This tax season, many borderline filers could very well take a second look at these products.
Starting this year, the IRS cannot release tax refunds for returns that claim an earned income tax credit or the additional child tax credit until February 15.
The Protecting Americans from Tax Hikes Act of 2015 – known as the PATH Act – put in place these additional barriers to combat fraud and identity theft.
Realistically, tax experts say that could be until around February 27, when many early filers will receive their cash refund.
This is no small point for many families.
“For most Americans who file in January and February, they really count on their refund as one of their biggest checks of the year,” said David Prokupek, CEO of Jackson Hewitt.
Prokupek said some $50 billion in refunds could be delayed due to the new law, and many consumers will want a product to deal with those kinds of numbers.
“Nobody has so much spare change lying around,” Prokupek said.
Jackson Hewitt offers loans
by Jackson Hewitt Express reimbursement advance is marketed as a no-fee loan, with an annual percentage rate of charge of 0% and without a credit check.
Jackson Hewitt’s Express Refund Advance offers loans in the amounts of $250, $500, $750, $1,000, and $1,300 – again depending on what the client is approved by MetaBank. For example, someone who is likely to get a $500 tax refund might qualify for a $250 advance.
Jackson Hewitt kicked off its tax season in late November by offering taxpayers a way to prequalify for an Express Refund Advance by answering a few questions about www.ExpressRefundAdvance.com. The first loans could even be issued with just a pay stub — not W-2s, which are due out by Jan. 31.
Walmart shoppers — Jackson Hewitt has tax services operations at 3,000 Walmart stores — see signs in the store promoting the new prepayment product.
Again, advance loans are only available if you go to a Walmart store or one of Jackson Hewitt’s storefronts. You cannot get the loans online.
“Distributing money on the internet without seeing your face or your ID is not something we want to do,” Prokupek said.
To get the loan, you will need to pay to file your taxes with Jackson Hewitt. And if you take out a repayment advance from H&R Block, you’ll need to file your taxes with H&R Block. The advances would be repaid with the actual money from the tax refund when it is issued.
If eligible for the Jackson Hewitt cash advance product, customers can receive money by direct deposit or loaded to a American Express Service Card free. A promotion offers customers who opt for the American Express prepaid card a $50 Walmart gift card.
“Consumers are spending their cashback dollars at Walmart,” Prokupek said.
With the American Express Serve Card, consumers can withdraw cash for free from MoneyPass branded ATMs, which are listed online at www.moneypass.com.
Consumers would pay a American Express service charge of $3.50 to withdraw money from ATMs other than MoneyPass. And it is possible that the ATM operator also charges a fee.
The H&R Block loan is loaded on a H&R Block Emerald MasterCard Prepaid Card. You would pay a $3 fee at ATMs to withdraw money. You can avoid additional fees by getting cash from MoneyPass or Allpoint ATMs at 7-Eleven and CVS stores.
Ask before registering
So what are the questions consumers need to ask themselves if they are tempted by 0% cashback advances?
One concern: How much will tax preparation services cost you? Cash-strapped filers might be tempted to pay up to a few hundred dollars for tax preparation services instead of using free services, if they want to access advance loans.
Additionally, the Internal Revenue Service estimates that 70% of taxpayers nationwide are eligible for IRS Free File where the software is available to those with an income of $64,000 or less. See www.irs.gov.
“A taxpayer should inform themselves about the costs of preparing their returns and any related products offered so that they can make informed decisions,” said Marshall Hunt, CPA and director of tax policy for the program. tax assistance from the Accounting Aid Society in Detroit.
Other potential costs: How much will it cost to get your money via a prepaid card? Although many cards offer no-fee services, review potential fees with the card, including how much it would cost you to go to an ATM to get cash.
For example, the Jackson Hewitt product offers fee-free transactions at MoneyPass ATMs, but transactions at non-MoneyPass ATMs incur a $3.50 American Express service fee. And it is possible that the operator of the ATM you use also charges additional fees.
If you don’t use one of these prepaid cards for about two months, you could be hit with inactivity fees each month.
Wu of the National Consumer Law Center says there is always a fear that unscrupulous tax preparers could raise borrower fees. And she warns that consumers would want to consider hidden fees and possible additional costs if they opted for another product, such as a refund anticipation check.
In some cases, advocates have warned consumers can be hit with fees of $25 to $60 for refund anticipation checks.
Consumers facing delays should consider contingency plans. Prioritize the payment of rent and utilities. Don’t expect a tax refund to come in like last year to pay those bills, especially if you get the EITC. Even with advance loans, consumers should realize that there are limits on the amount of cash advances available.
Contact Susan Tompor: [email protected] or 313-222-8876. Follow her on Twitter @Tompor.