Cash-strapped Americans paid nearly $850M to get their tax refunds early — but the IRS didn’t warn people about hidden fees. Here’s what you need to know

Tax-filers who got refunds paid the price

A report by the Treasury Inspector General for Tax Administration (TIGTA) found that during this year’s tax season, roughly 22 million electronically filed tax returns used a refund product to access their money before the IRS's typical 21-day turnaround. Of these, 96% relied on refund anticipation checks, while 4% used refund anticipation loans.

If you’re not familiar with these products:

• Refund anticipation loans are short-term loans based on an expected refund amount. They usually come with high fees and interest rates.
• Refund anticipation checks involve opening a temporary bank account to receive an advance of your refund, minus fees. They money doesn’t come from the IRS but from the tax preparer or service provider.

The problem, though, is that taxpayers who accessed their refunds early lost an astounding $842 million in fees. Many probably had no idea that they'd be losing that money.

Making matters worse, the IRS doesn’t regulate or ban early refund products, leaving taxpayers vulnerable to costly traps. While the agency has faced criticism for not doing more to warn filers, the burden largely falls on individuals to avoid these pitfalls.

TIGTA’s review of tax providers offering early refund products found that one provider charged almost 36% on refund anticipation loans issued from November 1, 2023, to December 31, 2023, with a March 31, 2024 repayment date. Another provider offered a refund anticipation loan from December 11, 2023, to January 14, 2024, with an almost 36% interest rate and a finance charge of 7.5%.

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How to get your refund early without paying fees

Given the average refund amount, it's easy to see why you'd want early access to your money. But using refund anticipation checks or loans could cost you big time.

Instead, here are some tips to speed up your refund without losing money:

• File early: Get your tax documents in order early and be on the lookout for when the 2024 filing season opens. Although 2024 taxes aren't due until April 15, 2025, the IRS generally begins accepting returns in late January. The sooner you're able to file yours, the sooner your refund will arrive.
• File electronically: E-filing is faster than paper filing, and choosing direct deposit over a mailed check can also expedite your refund.
• Know the rules: By law, the IRS is required to withhold refunds associated with the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until mid-February to prevent fraud. Even if you file early, refunds with these credits may not arrive until then.

Another helpful step is to see if you qualify for free tax assistance. Programs like the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE), sponsored by the IRS, offer free tax prep help. Use this tool to find services in your area.

Adjust your tax withholding to avoid a big refund

If you typically get a large refund from the IRS and your income situation hasn’t changed in 2024, consider adjusting your withholding for 2025. Updating your W-4 with your payroll department could result in bigger paychecks throughout the year. While this means a smaller refund tax time, you’ll have more immediate access to more of your money.

That said, there’s a danger in having too little tax withheld and having to owe the IRS money if you go this route. To avoid underpayment, consider setting aside some of the extra money in your paychecks as a buffer.