The unexpected tax prep fee you can avoid

Consumers who want to avoid paying upfront to do their taxes online or get them done at a storefront could get tripped up by some unexpected and fairly steep fees.

The pitch is simple: “Pay nothing out of pocket.” How? Well, tax prep firms say you’d deduct what you owe for tax servicesfrom your federal income tax refund. But what some consumers don’t realize is that there’s yet anotherfee, if you don’t pay upfront.

So an $80 bill to do your taxes online easily could turn into $120.

You’re essentially taking an advance to cover your tax preparation fee, warnedChi Chi Wu, staff attorney for the National Consumer Law Center.

“It’s basically a two- to three-week loan. It’s an extremely expensive proposition,” Wu said.

Waiting until the last-minute to do your taxes could drive you to sign up for some ridiculous fee or click on the wrong thing.

So before you rush and you do have until April 17, not April 15 to file this year watch out for potential tax-time tripwires.

This tax season, plenty of consumers already have hit Twitter and other social media to complain about a $39.99 charge that’s called a “refund processing fee” when they use TurboTax online. Some consumers call the charge deceptive.

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After all, pay money to process a refund? Isn’t that part of filing your taxes?

TurboTax’s response to Twitter complaints is that the “Refund Processing Fee ($39.99) is charged by Santa Barbara Tax Product Group, it is not a TurboTax charge.”

“This is an added convenience offered for those customers who dont have their credit card handy and is completely optional.Customers can also choose to pay with a credit, debit or pre-paid card,” said Ashley McMahon, senior manager for corporate communications for Intuit, the maker of TurboTax.

“You dont pay for TurboTax until you file your taxes,” she said. “This is true regardless of whether you are getting a refund or end up owing money.”

TurboTax gives steps online in an FAQ on how to remove that $39.99 charge. But you can only remove that fee before you actually electronically file the return.

Once your “e-filed return is inpendingoracceptedstatus, it’s too late to remove the Refund Processing Service.”

What is refund processing? Even TurboTax has to admit it’s kind of an odd term.

“Despite the somewhat misleading name, you don’t need Refund Processing to process your refund! It’s just a convenient way to pay for TurboTax if you don’t have (or don’t want to use) your credit or debit card. You can certainly e-file or direct-deposit your refund without choosing Refund Processing,” TurboTax states online.

The file-now-pay-later option isn’t just being offered via TurboTax, of course.

Many consumers don’t want to hand over $100, $200 or more on the spot to get their taxes done or access tax software. So, theidea of deducting that money out of a tax refund is quite appealing.

H&R Block has a “Refund Transfer” service fee of $39.95 for clients who file their taxes at an H&R Block tax office. The cost is $34.95 for online filers.

“Clients can pay upfront with cash, check, debit card or credit card for no additional fee,” said Susan Waldron, a spokesperson for H&R Block.


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“Clients can also choose a Refund Transfer, which includes a temporary bank account through Bofi Federal Bank to receive their refund, which allows the client to pay their tax preparation fees out of this account after our services are complete,” she said.

Other tax firms, including TaxSlayer and TaxAct, offer ways to have fees deducted from your refund, too, again for an added fee.

To cover those fees, a temporary bank account is set up by a bank that’s partnering with a tax preparation firm. The refund is deposited into that account and then the paid preparer is able to deduct the fees from that account.

A 2012 study by the Government Accountability Office indicated that more than 20 million taxpayers at that time had agreed to programs that would enable them to deduct return preparation fees from their refunds.

The use of what’s called “Refund Anticipation Checks” often advertised as “no out-of-pocket costs” has come under fire by consumer advocates. Some say more effective disclosure is needed so taxpayers better understand fees.

For example, taxpayers who have bank accounts and access to credit should have little need for such accounts, according to the GAO study.

The GAO study also pointed outthat consumers can be hit with other extra fees, too, such as those associated with accessing a refund put on a prepaid debit card.

Yet, if you cannot afford to pay upfront to have your taxes done, there are other less-costly options. And those options are available even to last-minute filers.

Remember, more than70% of all taxpayers are eligible for free online tax services via the IRS site called “Free File.”See

The Free File program has provided more than $1 billion in free tax software in the past 16 years, according to the Free File Alliance.

Even so, only about 2.5 million taxpayers used Free File nationwide or less than 2% of individual returns filed electronically in fiscal year 2017, according to the IRS Data Book. In Michigan, only 89,544 returns were filed via Free File.

If your income is below $66,000 you’re eligible for free online federal tax preparation software that is obtained directly through the IRS site.

Some programs offered online through “Free File” stipulate that the taxpayer be age 52 or younger. But some have no age limits if you live in specific states. You’d need to scroll to see what free online service might apply to you.

Alliance members are not required to provide free state returns for all 50 states but some do so.

Contact Susan Tompor: or 313-222-8876. Follow Susan on Twitter @Tompor.


Columnist Jennifer Jolly tests apps and help sites for finishing your taxes. Jennifer Jolly, special for USA TODAY

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