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Beware the Instant Tax Rebate


In return for your instant rebate (which is really a loan), you'll pay a tax preparation fee, loan origination fee, and a fee for setting up a temporary bank account. Doesn't make much sense, does it?

With the economy still staggering and unemployment levels stuck in double digits, the idea of going to a tax preparer and walking out with cash the same day is looking pretty good. While tax services are pushing “instant rebates” as a way to pull in clients, it pays to take a closer look at what you’re really signing up for. What the marketers call an instant rebate is really a refund anticipation loan and it can cost you.

Tax experts point out that, since the instant rebate is really a loan, you will pay interest on it and the interest rate can be a whopper, with an effective annual percentage rate of up to 500%, depending on the size of the rebate. In addition, you’ll pay a fee for preparing the tax return, a loan origination fee, and another fee for setting up a temporary bank account. In 2008, these fees cost taxpayers about $800 million.

There’s a better to get your refund quickly, say the tax mavens, and that’s to file your 1040 electronically. By e-filing your return and requesting direct deposit of your refund into your bank account, you can get the cash in your hands in less than 10 days. Depending on your income level and how complex your return is, you may be able to e-file for free, either through the IRS or through a commercial tax-prep service that offers free e-filing.

For more complex returns, you may want to pay a tax service like Jackson Hewitt or Turbo Tax to help you out. For more info on e-filing, go to the IRS e-file Web page.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice