What is a refund transfer?
Short answer
A refund transfer is a bank product that pays the preparer's fee out of the refund: the refund lands in a temporary account, fees come out, and the client gets the rest.
What it is
With a refund transfer the preparer's software partners with a bank. The IRS sends the refund to an account the bank opens for that return; the bank deducts the preparer's fee and its own fee, then sends the balance to the client by direct deposit, check or prepaid card. The client pays nothing up front. It is not a loan and does not speed up the refund.
Fees must be disclosed, and IRS Publication 1345 restricts how financial products may be advertised, including any suggestion that the refund will arrive sooner. State rules also apply in some places.
Why it matters for a tax firm
For firms whose clients cannot pay in February, refund transfers are how the fee gets collected at all. A "funded" refund transfer, one where the IRS actually paid the refund into the account, is the event that triggers the firm's fee.
How XyloDocs handles it
The tax software XyloDocs plans for the 2027 season ties its season fee to funded refund transfers: the fee is paid up front and refunded in full at 100 funded transfers. It is not a discount and it is not free.
Related terms
Read more on XyloDocs
Sources
Questions about Refund transfer
Is a refund transfer a loan?
No. The client receives their own refund after fees are deducted. A refund advance is the loan product.
Does a refund transfer make the refund arrive faster?
No, and Publication 1345 forbids advertising it that way. The IRS pays on its own schedule; the bank only changes where the money lands first.
Last reviewed: October 16, 2026. This glossary explains terms; it is not legal or tax advice. Check the cited source for the current rule.
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