Understanding Pre-Tax Refund Loans: Options & Risks

Tax services often extend pre-income tax loans, or refund anticipation loans. They offer consumers an opportunity to obtain a portion of their federal income tax refunds based on their final paychecks of the year (pay stubs and holiday RALs). Holiday RALs are popular refund anticipation loans offered during November and December. These loans carry high interest rates, often up to 700 percent, and are intended for short-term use to consumers who need quick access to their income tax refunds.

Step 1

Search for tax services or lending services in the telephone directory or on the Internet to find a refund anticipation loan provider.

Step 2

Bring the tax service your latest paycheck stub. A pre-tax income loan will be based on your year-to-date earnings and amount you have paid in federal taxes. The year's final check stub will maximize the amount of the refund anticipation loan available.

Step 3

Gather any receipts if you plan on itemizing your expenses. Itemizing allows you to reduce your federal taxable wages, thus increasing the chance you will receive a refund. The tax service will also need any W-2 or 1099 forms when you receive them from your employer.

Step 4

Sign your loan agreement, which is a contract between you and the tax service that is extending credit. Under the agreement, the credit will be repaid when you receive your federal income tax refund. The tax service will deduct the payoff amount of your loan and issue you the remainder of your refund.

Things You'll Need

• Tax service provider

• Last check stub of the year

• Receipts for expenses

• W-2 and 1099 forms