Think twice before paying an online tax preparer from your refund
- If you file your taxes online this season, you may be given the option to pay those tax filing fees through your refund.
- While it sounds easier than pulling out your debit or credit card, pay attention: Most online preparers charge an extra fee for this.
- If you can, use a rewards credit card instead. You'll earn points or cash back, avoid a service charge, and get your refund in full.
- See Business Insider's picks for best tax software »
Millions of Americans are looking forward to a tax refund this year.
To receive yours as soon as possible, the IRS recommends filing electronically and choosing direct deposit. About 90% of taxpayers who use this method and are owed a refund get theirs within 21 days of submitting their return.
Many Americans are eligible for free federal tax filing, but if you earn freelance income or have an otherwise complicated tax situation, you will likely need to pay tax filing fees to prepare your federal and state returns.
If you use an online service like H&R Block, TurboTax, or TaxAct, you can start preparing your return for free. Most tax preparers don't require money up front; you'll typically pay the fees once you're ready to sign and submit your return.
The IRS estimates it takes the average person about four hours to complete and file their return. By the time you reach the screen asking for payment, you're probably looking for the quickest exit route. Online preparers will give you the option to pay for their services via credit or debit card or through your refund.
If you check the box to pay through your refund, you don't have to do anything on your end but simply wait for your share of the refund to be deposited in your bank account. Sure, that may sound easy, but be careful: Most preparers tack on an extra fee for this method of payment, and it's not insignificant.
Paying your online tax preparer through your refund could cost you up to $40 extra
H&R Block and TurboTax each charge an additional processing fee of $40 if you agree to pay through your refund. That's $40 on top of the fee you're paying for the package you selected, meaning you could easily double what you expected to pay.
Efile.com and 1040.com, two of the best budget tax software options, charge an additional fee of $25 to deduct their fee from your refund. TaxAct charges its own fee plus bank fees.
That's not to say these online tax preparers aren't worth your time. In fact, they're among the best options on the market. But if you want to make the most of your refund, don't settle for the easiest option - take an extra minute to pull out your credit card and avoid the unnecessary processing fee.
If you can, use a rewards credit card to pay for online tax prep and filing instead of deducting the amount from your refund. There's usually no service charge to pay via credit card; you'll be able to earn rewards points or cash back, depending on the card you have; and you'll get your tax refund in full.
- More tax day coverage:
- When are taxes due?
- How to file taxes for 2019
- What is a tax credit?
- H&R Block vs. TurboTax
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