If you’ve been turned down for a tax refund-related loan, it might have been for one of these reasons:
Tax season officially opens https://paydayloansohio.net/cities/youngstown/ on , and that means that the rush to benefit from a tax refund has already started. The law now requires the Internal Revenue Service (IRS) to hold refunds tied to the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until at least February 15. There may be additional delays: Factoring in weekends and the President’s Day holiday, the IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on .
With that in mind, some taxpayers use a tax Refund Anticipation Loan (RAL) to bridge the gap between the first of the year and mid-to-late February. But not all efforts to secure an RAL are successful. Sometimes, you’ll get turned down even if you think you’ve done everything right and even if you’ve had no problems in prior years, and you may not know why.
1. You have bad credit. Remember that an RAL is a loan. You have to repay the entire amount of the loan even if you receive a smaller tax refund than you anticipated and even if you don’t receive any tax refund at all. That means that your tax refund must be large enough after you take out interest rates and fees, as well as any tax prep fees, to pay off the loan. All kinds of things could reduce the amount you actually receive, including tax law changes and offsets (more on those in a moment). The IRS no longer provides a “debt indicator” which advises the lender in advance whether any part of your refund is earmarked for offset. That makes it more difficult to know what your bottom line might be and it also makes it more likely that the lender could rely on other criteria, like a credit check.
(Quick add: There may be another reason you fail a credit check, even if you have good credit. If you’ve been the victim of a data breach and decided to take advantage of a credit freeze, the freeze affects access to your credit information. See Zack Friedman’s article here.)
2. You don’t have the right documents. However, the IRS specifically bars tax preparers from e-filing your tax returns without receipt of forms W-2 (as well as forms W-2G and 1099-R, if applicable). If your tax preparer can’t put together your return, they may not be able to justify offering you a loan.
Banks, employers, and others generally have until January 31 to get your tax forms to you (you can check specific due dates here), so it can be tempting to show up at your tax preparer’s office with your last paycheck in hand – and nothing else
3. You made too much money. I know, you’re scratching your head on this one, but hear me out. The reality is that most of the big dollar tax refund checks are tied to refundable tax credits, like the EITC and the ACTC. Those credits are generally restricted by a “completed phaseout amount” which is the amount of income at or above which no credit is allowed. If you make too much money, you won’t qualify for the tax credits. Your tax preparer knows this, and if your income won’t support those credits, it’s likely that your tax refund could be too small to be worth offering you a loan (remember that you have to account for fees, including tax prep, in the total). You can check the phaseout amounts for 2017 here (IRS Rev. Proc. 2016-55 downloads as a pdf)