By Mark Castro, CPA
A refund transfer (RT) is a non-loan bank product that a taxpayer can elect to use in order to pay their tax preparation fee and other services or fees by deducting it from their tax refund amount.
Any taxpayer is eligible for a refund transfer as long as they use a tax preparer who is offering a refund transfer product and they are claiming a refund on their tax return.
As part of the preparation of their tax return, an individual will agree to pay their tax preparation fee and other authorized fees by way of their refund on their tax return. When the return is filed with the IRS, temporary bank account information is included with the return.
When the refund is issued by the IRS, the refund is deposited into the taxpayer’s temporary account. Then, the tax preparation fee and other authorized fees are deducted from the tax refund amount and the remaining balance is disbursed to the taxpayer via the disbursement method that they have chosen.
This is a fee that is charged by the bank for setting up the temporary account and processing the refund transfer transaction. The fee is taken from the taxpayer’s refund after it is released by the IRS and deposited into the taxpayer’s temporary bank account.
The individual will receive their refund less the tax preparation fee and other fees that they have authorized via the disbursement method that they have chosen when they requested the refund transfer bank product. The usual disbursement methods are a direct deposit to their bank account or on a prepaid card.
When the individual will receive their net refund depends on when the IRS releases the refund to the financial institution that offers the refund transfer option to the tax preparer that the individual used to prepare their tax return. The refund on e-filed returns is released within 21 days (usually less) unless the return is held by the IRS for further review.
A refund transfer helps the taxpayer in the following ways:
RTs allow the taxpayer to pay for the preparation of their tax return without having to pay anything upfront. The tax preparation cost and any related fees are paid via the refund with the taxpayer receiving the net amount when the IRS releases the refund.
The taxpayer may choose how they receive their payment. They may choose to have it direct deposited (if they have a bank account), receive it on a prepaid card, or have a check issued to them.
If the taxpayer does not have a bank account, the refund is received safely as a direct deposit to the bank and then disbursed to them in the payment method they choose, rather than the taxpayer having to wait for a check from the IRS via standard mail.
If the taxpayer chooses to receive their refund transfer as a check or via a prepaid card, they have the security of picking up a bank issued check or prepaid card from the safety of their preparer’s tax office instead of receiving a check in the mail from the IRS.
A refund transfer helps benefit the tax preparer in the following ways:
Refund transfers give the tax preparer the peace of mind that they will receive their tax preparation fee as a direct deposit to their account. This streamlines the payment process and eliminates the need to collect the prep fee from the customer either at the time the return is prepared or from the customer at a later time if it is billed to them.
Refund transfers give the tax preparer the ability to serve customers who cannot pay for their tax preparation upfront at the time the return is prepared. This means more people are able to use the tax preparer’s services, which translates to more revenue for the tax preparer’s business.
At CrossLink, we understand tax preparer’s need for multiple refund transfer (RT) and bank product options. That is why CrossLink partners with several industry-leading bank product and RT providers, ensuring our customers always have a variety of funding choices. From RTs to refund advances, CrossLink approved banking partners have what tax professionals need to serve their customers. To learn more about our approved banking partners, visit the CrossLink Banking Center.