What is a Tax Refund Transfer & How Does it Work?

If you’re looking for a way to offer more to your clients, refund transfers could be a valuable addition to your tax preparation business. Refund transfers offer a seamless solution that can streamline your clients’ tax refund process. This guide will explain the basics of bank products, how they function and the various ways they can benefit your business and your clients.  

Key takeaways on refund transfers 

  • Refund transfers are bank products that allow clients to receive their tax refunds while covering tax preparation fees with no upfront costs. 
  • Refunds go through a settlement bank, not directly to clients. Your bank partner deducts your preparation fee and other associated fees before refunding. 
  • Clients receive their remaining funds via their preferred method (check, direct deposit, prepaid card). 
  • Client benefits include no upfront costs for tax preparation, flexible disbursement methods, and the possibility of faster refunds through refund advances, sometimes interest-free. 
  • Business advantages include strengthening your service offerings, enhancing client attraction, simplifying the payment process, reducing the need for payment follow-ups, and differentiating your tax preparation business in a competitive market. 

What are refund transfers?

Refund transfers, also known as bank products and refund settlement solutions, are one way your clients can choose to receive their tax refunds. With refund transfers, your clients can use your services at no cost upfront, and then have your fee easily deducted from their refund.  

How does the refund transfer process work?

Step 1:  Prepare return & confirm refund 

After you complete a client’s tax return and determine that they should receive a refund, they can elect to use the refund transfer process.  

You should make it clear that the refund transfer process is completely optional and involves some fees. For many taxpayers, the convenience of refund transfers outweighs the additional cost. 

Refund transfers and refund advances are integrated into TaxSlayer Pro, allowing you to offer your client several options to more quickly receive their refund. 

Step 2: IRS distributes refund to the bank 

Instead of receiving their money directly from the IRS, your client’s refund will first be routed through a refund settlement bank. These banks are specially authorized to deduct necessary fees from federal and state tax refunds and then distribute them to the taxpayer. 

Step 3: Bank handles relevant fees 

The bank will deduct your preparation fee from the refund and distribute it to you, usually through direct deposit. Any other associated fees — such as service bureau fees, refund transfer fees, or transmitter fees — will also be deducted with no hassle for your client.  

Step 4: Clients receive their money 

After the bank has received payment from the IRS and processed your tax preparation fee, they’ll distribute the refund to your client. Depending on the bank, your client can receive their refund in the form of a check, direct deposit, or a prepaid card.  

For clients, the refund transfer process is a simple and easy way to receive their refunds and pay for their tax preparation.  

How long does a refund transfer take? 

The timeline for completing a refund transfer can vary, depending on the IRS, your client’s bank, and the method of filing. Once the IRS or state taxing authority issues a tax refund, funds are typically deposited into your client’s temporary account with the third-party bank product in as little as 21 days from the date the IRS acknowledges processing the federal tax return.  

When the IRS processes the refund, your bank partner will deduct all authorized fees, including tax preparation fees, from the total refund. Then, the bank partner will disburse the remaining balance to your client through the method they select, either direct deposit, a check, or prepaid card.   

How can refund transfers benefit your clients? 

Tax preparation with no upfront cost 

Refund transfers are a great option for taxpayers who can’t afford or don’t want to pay your tax preparation fee upfront. The bank will handle your fee, making the payment process as stress-free as possible for your clients. 

Choice of disbursement method 

Different payment options mean you can cater to clients who have a bank account as well as to clients who do not have a traditional banking relationship. 

Receive money sooner 

Many refund settlement banks also offer refund advances. These advances are a kind of loan that allows clients to receive their money faster than they could with a traditional refund disbursement. In this case, the bank will send payment to your client before the IRS has processed and sent their refund. All of the banks that TaxSlayer Pro partners with offer refund advances, and some of these are interest-free. 

How can refund transfers benefit your tax preparation business? 

Offer more to your clients 

Tax preparation is competitive, and the more options you can offer your clients, the better. Offering refund transfers and refund advances can give you an edge over other tax preparers. You can help clients get their money faster and serve clients who can’t pay upfront. 

Easier payments 

Refund transfers streamline the payment process and prevent you from having to chase down late payments. 

In a competitive market, differentiating yourself from your competitors is essential. Refund transfers can be an asset to your tax preparation business, helping you improve your cash flow and offer more to your clients.  

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