This is officially the first week of tax season. By law, employers had to distribute W2s by Jan. 31. For most of us that means tax refunds are as good as spent.
The average refund is $1,000, according to Dom LaPonzina, IRS spokesman for the Baltimore-Washington area. And 70 percent of those filing tax returns will get a refund.
So why postpone the pleasure? You owe it to yourself. That's the thinking that's popularized the tax preparers' come-on, "Get your rapid refund here, folks."
While the companies deliver what they promise, just beware that this time-sensitive service has its price.
Says Mr. LaPonzina, "Private preparers will guarantee that you'll get a refund in about three days. The vendor cuts the check, but it's actually a loan made through a bank."
And we all know banks don't give money away. But the price is worth it to lots of people, says Tom Zimmerman, executive vice president of H & R Block Tax Services.
The company prepared 13 million returns last year. Of the 7.5 million people who opted to file electronically -- by sending the return via a computer modem directly to the IRS -- 90 percent chose to get their refund in a "refund anticipation loan," the term H & R Block uses for its rapid refund service.
Here's how the process works at H & R Block:
* A taxpayer comes in and fills out a brief loan application.
* A tax preparer does the customer's tax return on the spot and determines whether a refund is due.
* The return is filed electronically.
* The customer leaves with a promise from H & R Block they'll have their refund in one to four days if the bank approves their loan.
* Beneficial National Bank, the institution H & R Block is working with this year, screens the loan application in the one-to-four-day period and tells the tax preparer:
1. The loan will be denied. One reason a loan may be refused is that the applicant has outstanding debt to the government (student loans in arrears, back taxes, unpaid child support, for example) that equals or exceeds the amount of the refund. In that case, the IRS would seize rather than return the refund, and the bank would lose money.
2. The client will get a partial amount. If the bank isn't sure the IRS will return as much as the preparer says it will, only part of the amount will be processed.
3. The client will get a full refund. The bank advances the refund amount to H & R Block, which in turn gives it to the client -- minus all fees incurred. (When the IRS makes the refund, it goes to the bank to close out the loan.)
And the fees can add up: The client pays a fee for the loan based on the amount of the return. (At H & R Block it's $29 to $89. Calls to other tax preparation firms revealed that the cost for the service varies greatly. For example, one quoted an $80 flat fee for the loan processing alone.) The client also pays for the tax return preparation -- the average price nationally last year was $58.44 -- plus another $25 to file the return electronically.
However, the IRS' Mr. LaPonzina warns, "If you don't receive your refund in a reasonable amount of time or something goes awry, don't call the IRS. It's between you, the vendor and the bank. We're not responsible for any rapid refunds."
The most rapid refund, says financial planner Karen Altfest, vice president of L. J. Altfest & Co. in New York, is the one most taxpayers could be giving themselves all year.
"Readjust your withholding so you don't get a big refund. Put the extra money you'll get in your paycheck into a certificate of deposit or stocks," she advises. "Amassing a large refund is in effect giving the government an interest-free loan for a year. When they return it, they don't give you any interest, and they don't thank you, either."
IN TIME
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