By Gary Silverman
Note from Gary: My colleague at Personal Money Planning, Certified Financial Health Counselor and Certified Credit Counselor (among other things) Michelle Kuehner, offered to help me out on a few of these posts. You can find out more about her at our website and at FixOurBudget.com.
A while back I wrote in my blog about watching a few episodes of Extreme Cheapskates (don’t judge…). I also made clear to point out that I could undeniably, one hundred percent, without a doubt guarantee:
- You would not see me at the park picking unknown weeds for a salad;
- I would opt for Quilted Northern toilet paper in my bathrooms rather than cutting up old pieces of cloth, which I would later launder;
- I would not ask other diners at restaurants if they were finished with their meals, and if I could have their leftovers; nor
- Would I boil a goat’s head for dinner simply because I could snag it for $1.17
I like saving a buck just as much as the next, but I have to draw the line somewhere, and that somewhere happens to be right in front of eating goat eyeballs. Let’s face it, the episodes were amusing. Do I think the stories may have been slightly exaggerated for our viewing entertainment? Probably so. Does it really matter all that much? Nope. The lesson I walked away with was the same: patience, in many capacities of life, can be beneficial. In these Cheapskate’s cases, they didn’t mind things taking a little extra time as long as it saved a few pennies. So why do we?
This is particularly true when is comes to tax refunds. The average refund in 2014 was $3,116. Of those receiving refunds, one in ten taxpayers opted for a refund anticipation type loan. And of that ten percentile, half were low income wage earners. Why are the numbers so high for this particular group of individuals? Sadly, they are the ones who typically need the funds the fastest, and usually don’t have a bank account for a direct deposit.
Using a less expensive, do-it-yourself electronic service like TurboTax gives you the option to have your refund either mailed or direct deposited into your bank account. With a check usually taking anywhere from four to six weeks, most of us choose the direct deposit method. This may well decrease the wait time to around two weeks. However, without an account to deposit these funds into, you’re at the mercy of the good ole boys at the postal service.
Unless, of course, you’re willing to pay a little extra to speed things up a bit.
Most of the larger tax preparation services offer some type of an accelerated refund product, most commonly in the form of a prepaid card. They sweeten the deal by allowing their fees to be deducted from the refund directly so the customer is not on the hook for any up-front, out-of-pocket expenses. Simply sign on the dotted line, and in a no time at all you’ll be on you way to shopping bliss.
So how much does this impatience cost the taxpayer in the long run? Well first you need to understand what the service they’re offering really is: it’s a loan. A pretty big one at that! Last year Americans paid $1.4 billion in interest for these tax refund loans. Just in case you missed it, that’s billion with a “B”. But let’s not stop there. Add another $500 million in application and processing fees, and jump that number up to almost $2 billion spent on, well, time. Two to four weeks of time to be precise. I guess Benjamin Franklin was right; “Time is money”.
Walmart is offering an alternative to the refund anticipation loan called Direct2Cash. Participating partners may offer the service, which costs up to $7, at the time of filing, and the provider may opt to not charge a fee at all. Once the customer completes the filing process, they receive a confirmation code via email. They can take that confirmation code to the Walmart Money Center or customer service desk, show proof of identity, and collect cold hard cash on the spot.
What are the benefits of this service versus the traditional paper check, or prepaid card?
- No check to get lost in the mail
- No check cashing fee (a 2% fee on a $3,116 refund is $62.32)
- Issuing of an actual paper check could result in an addition fee; often $20 more
- Prepaid cards can charge fees to access your funds (H&R Block Emerald Card charges a $2.50 per ATM transaction, and a $.95 per online/mobile bill pay transaction). In addition, the ATM owner may also charge a fee.
So what are the downsides to this too good to be true service? Well, for one they limit the amount of the refund to $7,500. However, if your refund is anywhere near that amount you’re giving the government an interest free loan…and we need to talk. Next, if you’ve filed a joint return both parties will need to be present to collect the funds. Fair enough. Also, I’m sure the participating tax preparation partner will have fees for their services. After all, we can’t expect them to work for free. But since this isn’t an refund anticipation loan, you won’t be side-swiped by those fees. Oh, and the confirmation code does have an expiration date, but since you are already paying extra to expedite things this shouldn’t be a problem. Right?
You can always save yourself all of this trouble, and lots of money, by simply waiting for a paper check. Once you receive it you can use it to open a savings account so next year you won’t be in such a rush to get the money you need.
Your tax return is not an annual bonus. It’s not “free money” that is worth losing a percentage of just to get a portion of it faster. It’s your money that you overpaid the government throughout the year. As long as so many people treat it as that way, these fees will continue to chip away at YOUR hard earned dollars.
Disclaimer: In case I haven’t made it clear…consult a tax specialist. I’m not one. I don’t hold myself out to be one. Don’t sue me~
Gary Silverman holds the Certified Financial Planner (CFP®) license and is a member of the Financial Planning Association (FPA®). Gary is the founder of Personal Money Planning, a retirement planning and investment advisory firm. Find out more about Personal Money Planning at the company website or follow on Facebook.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.