By Nikia Owens, Ph.D.

Refund Anticipation Checks (RACs) and Refund Anticipation Loans (RALs) are financial products often offered by some tax preparation companies that provide customers with an advance on their expected tax refund. RACs typically involve a fee for setting up a temporary bank account where the IRS can directly deposit the refund, which the customer receives minus fees. On the other hand, RALs are short-term loans with high interest rates and fees that are repaid directly from the taxpayer’s refund. 

Annually, twenty-two (22) million tax filers —opt for RACs! Did you know that when combined with the tax preparation fees, RAC fees account for an astonishing $19.67 billion from tax filers each year? Tax filers must be aware of these costs and consider whether the expedience of advance checks through a RAC or RAL justifies the additional fees. Indeed, it is financially prudent to avoid RALs due to the fees and associated costs that can quickly erode the value of the tax refund.

Thus, opting for direct deposit from the IRS and electronic filing can be a more cost-effective alternative, potentially saving billions in fees collectively for all filers.  Campaign For Working Families has Free tax filing options and access to financial products and services to support the option for a direct deposit from the IRS. 

Additionally, did you know an unexpected expense of $400 can be a tipping point for many American families, pushing them into financial hardship or even poverty? This precarious situation is reflected in numerous reports highlighting how a sizable portion of households would struggle to meet such an unforeseen cost without borrowing or selling assets. Preserving every dollar becomes apparent in this context, especially during tax season. 

Campaign for Working Families offers a vital service by providing free tax filing assistance. By utilizing these services, families can avoid the substantial fees often charged by paid preparers. This saving is not just a one-time benefit; it could be the start of an emergency fund—a ‘rainy-day’ buffer that may prevent a family from sliding into poverty in the face of sudden expenses. The act of redirecting funds typically lost to preparation fees into such a safety net can offer both financial security and peace of mind, underscoring the importance of taking advantage of CWF’s free tax preparation/filing services.

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