How to avoid tax refund processing fees

Getty Images

TurboTax isn’t the only one catching filers off guard

In the search for cheap, fast and convenient tax preparation, many taxpayers look to online services like TurboTax, H&R Block and TaxAct that promise low-cost and even free filing options. Unfortunately, “free” isn’t always free and convenience can come with some hidden fees.

Last year, TurboTax became a trending topic for charging users a $39.99 fee to process their refunds. This was in addition to the original filing service fee  — which ranges anywhere from $0 to $89.99. The fee in question is for a “refund process service” option which takes preparation fees directly from your federal tax refund. That basically means you have to pay a fee just to pay your fees.

This year, social media is ringing the alarm once again on what has been called a “shady practice” by the service. And, of course, this fee — which is essentially an advance on your tax refund — most affects low-income and non-tax savvy filers.

Many get roped in with promises of “free” and “no up-front costs” and upon completion are forced to pay more than necessary.

“Be wary of do-it-yourself tax platforms,” says Jonathan Marcello, financial coach and founder Marcellos Solutions, LLC. “The advertised no-fees are often bait-and-switch.”

He notes that the fees are similar to those from Refund Anticipation Checks (RACs). “With RACS, an agent creates a temporary bank account/debit card for a customer to get their funds. The tax-preparer gets their filing fees directly from the bank account.” However, Marcello says other fees are often added on as well, including set-up and technology fees.

For TurboTax filers, refunds are sent to Santa Barbara Tax Products Group. The group then distributes the refund after taking its processing cut.

The process is counterintuitive and most users don’t even see it until they are checking out or, worse after they have already paid it. It would seem simple to just opt to not pay, but users report having to search through pages of small print to first find out how they got the extra charge and then to deselect the “Refund Processing” option.

“[PSA] @TurboTax has some shady practices!” wrote Twitter user AdamGrossTX. “Don’t choose the option to pay with your refund. It will charge you an ADDITIONAL $39.99 on top of your fee for the TurboTax product you are using!! The disclosure is hidden.”

“Boo to “Processing Fee”!” wrote another user. “@turbotax You are NOT free free. Make your fees abundantly apparent in your commercials instead of down there in the fine print no one can read even with the ad paused.”

Ultimately, users can just decide to pay filing fees with a debit or credit card instead of having it pulled from their refund. But, if added, the process to remove the fee is not simple. TurboTax even created a help section on its website with instructions on how to remove the fee: intuit.me/2HErk54. However, you’ll still have to pay if your return is “in pending or accepted status.”

The name, itself —  “Refund Processing Service” — is also confusing to many who believe they have to pay the fee in order to process their refunds. So much so, the tax service has also created a Q&A page explaining the fee and that users “do not need Refund Processing Service to e-file and process your refund and refund processing won’t slow down nor speed up your refund.”

 While TurboTax is taking a serious public relations hit over the fee, they aren’t unique in charging a service fee to pay for filing costs via federal tax refunds. H&R Block also charges $39.95 for in-person services and $34.95 online. TaxAct and TaxSlayer also charge a similar fee.

So do other in-person tax agents, so if you’re heading into your local tax preparation office be sure to let them know that you don’t want to pay to cover your filing costs.

“Your best bet is to go to an agent and get your taxes prepared by someone who can address all of your questions on the spot,” says Marcello. They are knowledgeable about changing tax laws and might also be able to get you a better refund.” He does warn, however, that local agents also charge a fee for covering filing costs. “Tell them upfront you don’t want the extra fee.”

If you are adamant about doing it yourself, try the IRS’ Free File program. Qualifying taxpayers with an adjusted gross income of $66K or less can file their federal returns for free via the program. There are also some free state return services, as well.

At the end of the today, it’s important to note that most things that sound free, aren’t. So stay alert to avoid paying unnecessary fees.

For more information on tax filing, visit bit.ly/2UabDbK