Refund transfers can be a great addition to your tax preparation, but the key to getting all the benefits is understanding what they do. Everyone knows how frustrating it is to wait on a tax Refund check to arrive and then clear the bank before they can use it. What many people do not realize, though, is that there are other ways to get your refund distributed.
This year, instead of dealing with another agonizing wait to get your tax refund, consider a refund transfer. This guide will explain everything you need to know about what they are, how they work, and how you can benefit from them.
What is a Refund Transfer?
A refund transfer is one way taxpayers can choose to receive their tax refunds.
Here’s what you need to know about it:
- Refund transfers are also referred to as bank products and refund settlement solutions.
- Taxpayers can use refund transfers to set up FDIC-insured refund accounts to receive the refunds that result from filing their taxes.
- The Internal Revenue Services (IRS) then deposits their federal income tax refunds into these temporary accounts, usually within 21 days.
Once received, these taxpayers authorize payments to be taken out of their refund accounts, and the remaining funds will be sent to the accounts of their choosing.
Why a Refund Transfer is a Good Idea
Refund transfers offer taxpayers numerous benefits when it comes to their tax refunds.
Consider the following to fully know if they are right for you and your financial situation:
No Upfront Costs
One of the top benefits of refund transfers is they are great for taxpayers who do not want to pay their tax preparation fees upfront or cannot afford to do so. When a taxpayer uses a refund transfer, the bank handles these fees and makes the payment process as easy as possible.
Get Money Faster
One of the top benefits of refund transfers is they are great for taxpayers who do not want to pay their tax preparation fees upfront or cannot afford to do so. When a taxpayer uses a refund transfer, the bank handles these fees and makes the payment process as easy as possible.
Different Disbursement Methods
There are usually different payment options when using a refund transfer. These other methods allow taxpayers to choose to receive their tax refund transfer in a way that works best for them, which is especially beneficial for those who do not have traditional banking relationships.
Not Always the Best Option
Though the refund transfer may seem like a win-win solution, it is important to realize that it may not be ideal for some. Using refund transfers can result in bad financial habits, for example, especially true for people who rely on tax refunds to pay their bills.
You should be budgeting and saving for these expenses throughout the year if possible, rather than waiting on a tax return to help you pay them. Using a refund transfer can reinforce this bad habit of not budgeting.
Another negative aspect of the refund transfer is the fees involved. Some taxpayers can end up losing money that they could have received if they waited on a refund check.
How Do You Set Up Refund Transfers?
To fully understand how a refund transfer works, consider the following steps:
Once a taxpayer’s tax return is completed, they can elect to use the refund transfer process.
Rather than getting the money from the IRS, the taxpayer’s refund will be routed through a refund settlement bank. These banks are authorized to deduct necessary fees and then distribute the funds to the taxpayer.
The bank will take care of deducting the preparation fees from the refund, as well as any other associated fees such as refund transfer, transmitter, and service bureau fees.
Once the bank has deducted all the necessary fees, they will distribute the refund in the taxpayer’s preferred form. Depending on the bank, taxpayers can receive their refunds in the form of direct deposit, prepaid card, or even check.
For many taxpayers, the refund transfer is an easy way to quickly receive their refunds and take care of all the required fees in a hassle-free manner.
Refund Transfer Hang Ups to Watch For
No practice is perfect, and mistakes happen every day that can hinder your ability to get your tax refund.
There are specific actions you can take to avoid some of these pitfalls, however:
Incorrect Direct Deposit Information
Refund Transfers can quickly get your refund in the form of a direct deposit. Yet even though this is a great option, one wrong account number and you can end up losing your refund entirely.
That is why you need to make sure you enter your account and banking route numbers correctly.
Wrong Personal Information
You can speed up the process of getting your tax refund through the refund transfer method, but personal information that does not match what the IRS has on record can result in the IRS slowing down the whole refund action.
If you are a new wife who changed her surname, for example, you need to alert the Social Security Administration of your name change. This can ensure there will be no problems when filing your first joint tax return.
One missed letter or number may seem like simple errors, but these mistakes can end up costing you if you are relying on the refund transfer to get your refund fast. Be sure to check your work before submitting.
Make the Refund Transfer Process Easier with Help From the Experts
Refund transfers can be beneficial so long as you understand the process and how to tackle it. If you want further information about them, contact Silver Tax Group today to speak with an expert about any questions you might have.
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