Smarter Payments

How Smarter Payment Tools Make Filing Taxes Less Taxing

The early bird may get the worm, but for the 15 million early tax filers in the U.S., weeks may go by until they see their refunds. Jim Koger, H&R Block’s VP of corporate operations, tells Karen Webster how enabling immediate refund advances on prepaid cards can unlock greater financial stability for tax filers while yielding a competitive advantage in a crowded tax preparation market. That, plus a deep dive into the state of global faster payment systems, in the inaugural Smarter Payments Tracker.

Filing taxes is hardly a walk in the park.

There’s the scouring of W2s, 1099s and the many receipts collected over the year, not to mention the anxiety of triggering an audit with an incorrectly filled-out form.

Fortunately, online tax filing solutions have helped cut through the mounds of paperwork that go into preparation and filing — and consumers seem to be rejoicing. As of March 16, 2018, the Internal Revenue Service (IRS) reports approximately 72.7 million individual returns have been filed electronically, a slight 0.7 percent uptick from the same period in 2017.

For many, though, the hard part comes after their taxes are filed and they are forced to play the waiting game, even if they opt to get refunds with direct deposit. That wait can feel like an eternity to those planning to use refunds to pay off bills or splurge on a vacation or big screen TV.

The tax preparation industry is catching on, however, and several players — like H&R Block — are now offering instant payment solutions. These options allow approved filers to quickly gain access to money at tax time through same-day loans disbursed to prepaid cards to alleviate the stress of waiting.

For the inaugural Smarter Payments Tracker, PYMNTS’ Karen Webster recently caught up with Jim Koger, vice president of corporate operations for H&R Block. They discussed how the company’s adoption of more efficient payment technology is a competitive advantage in an age where DIY tax filing is growing in popularity, increasing competition in the tax preparation segment and giving consumers faster access to their money.

Expediting the return process

The average federal tax refund is $2,960 — $3,091 for direct deposit filers — as of March 2018. For many Americans, receiving this money can be one of the largest financial events of the year. That includes a significant portion who file with H&R Block, Koger said.

Given the stakes, it’s little wonder that direct deposit is the preferred option for tax filers. The most recent Disbursement Satisfaction Index™ found consumers gave direct deposit the highest possible satisfaction score of 100 out of 100. It also found income tax refunds represented the most frequent use case for direct deposit disbursements, with 56.88 percent consumers reportedly receiving this type of payment.

Nine out of 10 tax refunds are issued through direct deposit in approximately 21 days, according to the IRS. But, as Webster pointed out, that weeks-long stretch may be too long for filers who want to use the money on a big purchase or to finally pay off a bill. Koger confirmed many of H&R Block’s filers have similar plans in mind for when the refunds are in hand.

“Some of them use it to pay bills down, some of them look at it as fun money [that allows them to] take that special trip or purchase that special thing they’ve been waiting on,” Koger said.

These long waits are prompting tax preparation companies like H&R Block to seek more efficient refund payment options. One such H&R Block option is a Refund Advance of up to $3,000 for qualified filers. The advance is a no-interest loan issued by its banking partner, BofI Federal Bank, that can be repaid out of the filer’s federal or state income tax returns. The funds are disbursed to an Emerald Prepaid Mastercard on the same day customers apply for the loan.

Once issued, Refund Advance prepaid cards can be used like a debit card to make purchases. The no-interest loan also has no fees, and customers can manage the funds stored on the card using a mobile app, Koger explained.

“There are a lot of clients getting caught in the 21-plus day timing to get their refund, and it’s a very meaningful thing for them to be able to get access to some of that refund earlier,” he said.

Early filers could particularly benefit from a refund advance. Koger noted that while the early bird might get the worm, many early tax filers still have to wait until late February to get their refunds, given recent regulatory changes.

Millions of filers who get a jumpstart on their taxes in January will face a delay because of the current law on the books. Under the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the refunds of those claiming the Earned Income Tax Credit or the Additional Child Tax Credit. According to an H&R Block press release, the law affects approximately 15 million early season taxpayers.

Having the option to immediately get money equivalent to part of their refunds could help those early filers enjoy the fruits of their early labors, Koger noted.

“This allows clients that are in that position of living paycheck-to-paycheck to come in and get an interest-free loan,” he said. “We can help get them money today while the IRS is still taking, by law, time to process and send that refund to them.”

The omnichannel advantage

The prepaid card disbursement option is in practice at several other tax preparation companies — including online tax preparation services like TurboTax and TaxAct — but these services also come with a waiting period of at least 10 days. This is where H&R Block’s omnichannel strategy becomes an advantage, according to Koger. Instead of waiting for the prepaid card, H&R Block staff can issue cards right at the desk for customers who come into a tax office.

Having a brick-and-mortar presence and in-person tax professionals can also be useful for tax filers who begin to file online, but run into difficult questions about their returns. H&R Block allows users to digitally begin the filing process, then pause it to consult with a professional in one of its retail locations. Koger admitted there have been times when he has started his own tax return, but encountered a few issues that required advice from a tax professional.

“We have many different blends of options where clients can get their taxes done however it’s most comfortable to them these days,” he said.

Building a smarter tax filing system

Not only are new tools available to help filers get their taxes instantly, but they are also poised to grow smarter as technology evolves. Looking ahead, Koger anticipates machine learning and artificial intelligence (AI) to lead to a more efficient tax filing process.

“H&R Block is already on the forefront of leveraging this technology, as we have started using it with the millions of returns we have prepared to help clients get every credit and deduction for which they are eligible,” said Koger.

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