How do I get an Instant Tax Refund?

An instant tax refund is offered by many tax preparation firms as a way to get an anticipated income tax refund more quickly than would otherwise be possible. It amounts to a short-term, high-interest loan in the amount of the anticipated refund, all of which must then be paid back with interest when the person’s refund is paid. It is most often necessary to apply and be approved for this type of refund, and once the loan is approved, the taxpayer can usually get his money in less than 24 hours.

Some companies call this type of "refund" a refund anticipation loan, although the two terms sometimes define slightly different services. The history of the instant tax refund has been relatively short, and has seen its share of controversy. When the U.S. Internal Revenue Service (IRS) first introduced electronic tax return filing in the 1980s, it was possible for a tax accountant to receive confirmation that the return was free of mathematical errors. This confirmation was generally sent within one day, and guaranteed that the refund would be given, barring any misrepresentation of income on the part of the taxpayer.

These confirmations gave rise to the first instant refunds, out of which the tax preparer took a commission. There was a time in the 1990s when the IRS briefly stopped issuing such confirmations because of dubious tax reporting practices, but they were reinstated not long thereafter. The idea of the refund remained controversial, though, in light of the large profits that such a practice earns, largely from the working poor.

Various types of “instant” refunds exist, based on how fast the taxpayer needs his refund. A true instant tax refund is where the taxpayer is given a same-day cash advance in the value of his anticipated refund. Another type of loan is one that is available from 12 to 24 hours after a tax return is filed. The money is often given in the form of a prepaid credit card. In either case, the taxpayer must file an application at the place of business of the tax preparer. The loans themselves come from banks, and they are processed very quickly.

There is cost associated with obtaining an instant tax refund, because it does constitute debt, in the same way as a payday loan or title loan. Such debt should be avoided except in cases of necessity, simply because a taxpayer may end up paying a significant amount, just to receive money that was coming to him or her anyway, and fairly soon. Most IRS tax refunds are issued within just a few weeks, and it is worth the wait for many, rather than having to pay the fees that go with a loan.