America's independent, non-partisan advocate for overburdened taxpayers.

Press Release

Study: Free Market, Not Federal Meddling, Delivers Tax-Refund Alternatives Americans Want

For Immediate Release April 16, 2007
Pete Sepp, (703) 683-5700

(Alexandria, VA) -- Private-sector credit services are and should remain an option for consumers who need quick access to federal income tax refund-related money that the government's bureaucracy can't provide: that's the conclusion of an "Issue Brief" released today by the 362,000- member National Taxpayers Union (NTU).

"The federal government should improve its tax collection and refund procedures instead of limiting the very commercial products that were created because of the IRS's slow-moving ways," said NTU Senior Government Affairs Manager and Issue Brief author Kristina Rasmussen.

The IRS does not guarantee processing times for income tax refunds, though the average wait is 2-6 weeks depending upon the method of filing (such as paper) or refund delivery (such as direct deposit). Yet, some taxpayers can see delays of months. Rasmussen explored the private-sector services that have responded with more immediate availability of funds, such as short-term Refund Anticipation Loans (RALs) and debit cards with refunds preloaded onto them. Among her findings:

  • Commercial products serve a small niche. Typically only 1 in 13 Americans with tax refunds choose an RAL, a figure that has declined by 23 percent between 2004 and 2005.
  • Although 1/4 of RAL clients have incomes above $40,000, roughly 7 in 10 customers use the money mostly to pay bills or unexpected expenses.
  • Critics who focus on RAL costs overlook benefits such as convenience and savings over other alternatives. Rent that is two weeks overdue can often carry a daily surcharge of $10, roughly equaling the typical RAL fee. Overdrawn and late-paid credit bills face interest rates as high as 30 percent, and fees of up to $39. Even the IRS's Tax Installment Agreements carry a fee of as much as $105, along with steep interest and penalties.

Rasmussen noted that the RAL market would shrink even further if taxpayers could better adjust withholding, a step NTU has long recommended as a way for Americans to make their earnings work for them year-round. Standing in the way is a complex W-4 Withholding Form, which asks taxpayers to predict income such as the coming year's investment returns. The form and its worksheets not-so-subtly remind taxpayers to avoid having too little tax withheld, while offering three separate publications to help workers determine the proper amount.

Besides recommending simplification of tax laws, the author also warned policymakers against expecting too much, too soon from upcoming IRS computer upgrades. In the space of 20 years, the agency squandered some $12 billion on bungled IT projects.

"Opponents of RALs have largely failed to make a connection between broad-based tax reform and potentially lower RAL demand," Rasmussen concluded. "Until public officials take on this vital task, allowing the free market to flourish will serve millions of taxpayers and consumers who would otherwise be caught in the tax agency's bureaucratic machinery."

NTU is a non-partisan citizen group founded in 1969 to work for lower taxes and more economic freedom. Note: Issue Brief 163, From Government's Coffers to Our Wallets: Why Americans Need Choices in Tax Refund Delivery Services, is available at