Some tax refunds may come with hidden fees, a government report warns

If a tax advisor offers you a tax refund product such as a repayment advance or a retirement check, experts recommend reading the fine print first.

That’s because nearly 16% of American taxpayers paid more than $842 million in fees to receive their refunds in 2023. Of these, about 96% used a Refund Anticipation Check (RAC), the Treasury Inspector General for Tax Administration estimated in a report last week. Another 4% used a reimbursement loan (RAL).

These products may be of interest to taxpayers who are eager to receive their refund and don’t want to wait days or weeks for the IRS to deposit the money into their account or issue a check. And while the seven tax filing companies, which account for nearly 80% of total refund products, “were largely in compliance with applicable guidance, not all information was clearly available to consumers,” the agency’s review of their websites said.

“In some cases, fees and cost information for these products were not clearly stated and it was necessary to read the fine print or scroll through several pages to find some cost information,” it said.

Fees for advance tax loans and checks

According to the report, RAC fees ranged from $25 to $55 for the 2024 filing season. The average refund for these taxpayers was $3,841, suggesting that RAC costs represented approximately 1% of the total refund. The average refund for a paid RAL was $6,696.

Refunds can be made on prepaid cards, although associated fees can vary widely and many charge out-of-network ATM fees, warns the Consumer Financial Protection Bureau.

Additionally, many taxpayers are eligible for free assistance from IRS-certified preparers.

“Many taxpayers receive their refund from the IRS within 10 to 21 days,” the CFPB advises. “If you wait a week or two, you can save money.”

How to find a volunteer in your community or online:

• Go to irs.gov and search for “Free Tax Return Preparation.”
• Go to AARP.org and search “Tax-Aide Locator.”
• Go to GetYourRefund.org to file an online tax return
• Go to MyFreeTaxes.com to get assistance preparing your own tax return