ax refunds never come soon enough. Ask anyone swimming in holiday bills or planning a warm winter retreat.
The good news is that many tax preparers, including large chains such as H&R Block, offer refunds in as few as 24 to 48 hours in the form of loans against anticipated refunds. The bad news is that such loans are costly.
''The majority of our clientele who want money tomorrow are willing to pay the extra premium,'' said Tom Eng, supervisor of the Malden office of Jackson Hewett Tax Service, one of New England's larger tax preparers offering so-called refund anticipation loans, also known as rapid refund loans. ''But the equivalent annual percentage rate is 50 to 300 percent, depending on the amount of the loan.''
An RAL is based on an expected tax refund amount, approved and lent by an intermediary financial organization or a bank. While the taxpayer gets the funds immediately, the bank gets paid after the Internal Revenue Service processes the prepared tax forms. The refund goes back to the bank rather than to the tax filer.
A taxpayer taking out a $2,000 loan against his tax refund would pay $60 to $100 for tax preparation, $29 for electronic filing, and $79 interest on the actual loan, according to Susan Lennon, Boston area manager for Tax Man Inc., a Cambridge-based tax preparation company.
The interest is more like a fee against risk of loss to the lender, in case the IRS keeps some money it deems the taxpayer owes it.
Tax Man offers loans from Refunds Now Corp., a Louisville, Ky., financial services firm that checks the applications to ensure that applicants are not in bankruptcy or don't owe back taxes or child support.
Early tax filers and people with no credit or bad credit histories are especially apt to take out RALs, according to tax preparers.
''Right now, about 80 to 90 percent of our clients want RALs,'' Eng said. The number drops as the tax season progresses, he said, so that during a typical tax season about one-third of his office's clients will get refunds, and 40 percent of those will take out RALs.
Eng characterizes RALs as loans for people who typically have nowhere else to turn for rapid cash. Half of the people who take RALs at Jackson Hewett make less than $20,000 a year, and many are unmarried women.
Each tax preparation agency and its associated bank have a different cap for RALs. For example, Tax Man offers RALs up to $3,000 for a $94 interest charge. Jackson Hewett has a ceiling of $4,000. Within those limits, a tax filer can take a loan for up to 100 percent of his anticipated refund.
RALs took off with the advent of electronic income tax filing in 1986. About 80 percent of Jackson Hewett's clients file electronically.
Some 295,367 tax payers filed to the IRS electronically in Massachusetts, Maine, New Hampshire, and Vermont in 1997, according to IRS spokeswoman Peggy Riley. Another 12,320 filed on line from home computers, and 284,929 filed by telephone.
''We expect a big increase in electronic filing this year,'' she said.
At H&R Block, half of the 15.6 million tax forms the company filed nationwide in 1997 were electronic, up 15 percent over 1996, according to H&R Block spokesman Todd Ransom. The large chain files half of all electronic returns received by the IRS.
H&R Block does not break out figures for how many of those were RALs. However, Beneficial National Bank of Wilmington, Del., which handles most of H&R Block's RALs as well as those of other tax preparation firms, said it issued $2.9 million in RALs in 1997, up from $2.6 million in 1996. The average loan in 1997 was $1,600. Beneficial says it is the nation's largest issuer of RALs.
One option to the comparatively high-interest RALs is the electronic refund check. It typically takes 10 days to get the refund check, but it costs only $20 for as much as $10,000, plus the $29 electronic filing fee, said Lennon of Tax Man.
The ERC is less risky for financial institutions, because it is not a loan. It is the actual tax refund already paid out by the IRS.
One of the risks of RALs to financial institutions is that the tax forms are not yet processed by the IRS. That means the IRS may withhold some of the refund if it finds the taxpayer owes it money.
Of the 18,000 returns Tax Man prepared last season, about 400 involved RALs and 300 were ERCs, Lennon said.
Find extensive information on filing your 1997 taxes at Boston.com's Your Taxes, sponsored by Ernst & Young.
