When you are expecting a tax return, it can be hard to wait for those W-2 forms to come in the mail. Fortunately, you don’t have to wait too long; the IRS requires that they are in the mail by February 2 (because January 31 falls on a weekend). However, I’ve seen a lot of commercials recently from companies suggesting that they can help consumers access their money even before their W-2s arrive. I was very curious about this process, but had trouble finding a Web site that spelled out the details.
From my research (I actually let go of the mouse and picked up the phone!), I have learned that these companies are doing this in one of two ways:
1. They download W-2s directly from the larger W-2 providers (ex: ADP or TALX).
2. They estimate the amount a consumer will receive from his or her end-of-the-year paychecks(s).
Either way, there are fees for the tax preparation service.
Unfortunately, the next likely outcome is that the consumer applies for a refund anticipation loan. Basically, a refund anticipation loan is a short-term cash advance that uses the expected tax refund as collateral. The loans allows taxpayers to get their money a little bit earlier, but at a hefty price. Unless someone is facing a true financial emergency, the fees are just not worth the convenience.
My advice to taxpayers is to be patient. Refunds come quickly through the use of e-file and direct deposit. The IRS even has a program called Free File that allows most taxpayers e-file their federal tax returns for free.