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Government to Issue Debit Cards for Tax Refunds

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Plastic is a very real part of our society. Indeed, cash is rarely used as we pay with credit or debit. The government has long let taxpayers use credit cards to pay their taxes, and now the government is trying to decide if it is worth it to issue debit cards to those expecting refunds. Bankrate.com reports that a pilot program will be used to see how taxpayers react to receiving a Visa debit card in the mail instead of a paper check.

Who the Debit Card Tax Refund Program is Aimed At

As you might imagine, the debit card tax refund is not aimed at everyone at this time. While the program could expand to include more people, those who can accept the direct deposit of their tax refunds are likely to prefer that method of delivery. It’s faster, and there isn’t even the hassle of having yet another card to carry. However, there are thousands of people in the country who do not have bank accounts.

For now, reports Bankrate.com, the government’s pilot is targeting 600,000 people with low to moderate incomes. The idea is provide a fee-free alternative to receiving paper checks. This might be attractive because some banks, stores and other check-cashing businesses charge fees to handle the transaction. As a result, the tax refund isn’t as big as it should. If the government issued debit cards to those without bank accounts, they could receive their entire refund, fee-free. (Bankrate.com also points out that maybe more taxpayers would avoid tax refund anticipation loans if they knew a debit card was on the way — at a faster rate than a paper check.)

The debit cards, which are MyAccount prepaid debit Visa cards, could be used for other things as well. Users could have direct deposits made to these cards, and they could use them for bill pay, as well as for buying things at the store. The adding of tax rebate funds to the card wouldn’t cost anything, but other transactions might incur fees. The Treasury is also experimenting with debit cards linked to savings accounts, which could be beneficial to some.

It is worth knowing that there are four different debit cards being sent out. There are two with no monthly fees, with one of them linked to a savings account. The other two debit cards have a monthly fee of $4.95 — one of them linked to a savings account. The idea is to see which type of card proves most popular. (My money is on the debit card that is not linked to a savings account, and has no monthly fee.) Everyone who receives the debit card will have the opportunity to use it to receive a tax refund, speeding up the process if they don’t have bank accounts.

In general, I think this is a good idea. It provides the chance for those who would normally have no choice but to wait for a paper check to receive their tax refund faster, and in a more convenient form. However, for those of us who use direct deposit already, a tax refund debit card seems a little superfluous.

What do you think? Is a tax refund debit card a good idea?

{ 35 comments, please add your thoughts now! }

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35 Responses to “Government to Issue Debit Cards for Tax Refunds”

  1. KP says:

    If the goal is to provide a “fee-free” alternative for people who do not have bank accounts, why not eliminate the monthly fee? I’m sure everyone would prefer a card with no fees.

    The only preference that needs to be measured is whether or not they want to link a savings account. And I’d be curious about any other fees/restrictions in linking it to a savings account anyway, given it will be used for debit transactions.

    Thanks for sharing the information about this pilot program!

    • sophomore says:

      If you click through the links (Treasury, Bonneville Bank) you will see that fees are a small part of the program. Reading between the lines, this Treasury pilot is working to bring unbanked citizens onto the electronic financial network. The main offer points are low fees, reloadability, nationwide access, reducing paper instrument fees (e.g. money orders), and ease of use (card swipe). This program has a feel of “Postal Banking” for those familiar with the European model. On net, this could be a safe way to introduce modern financial services to some taxpayers.

  2. HedgeHoncho says:

    From an economic standpoint – this is an absolutely brilliant idea. The more we spend, the more the economy grows.

    From a personal finance standpoint, you should never opt for this. Cash is King.

  3. Stefanie says:

    This is a terrible idea that seems to penalize poor folks just as much, if not more than paying a fee to get a refund check cashed. $4.95/ mo. fee = $60 for the year = huge loss. This seems underhanded of the IRS and so utterly problematic to me.

  4. Marilyn says:

    I don’t support this. I don’t like to receive these prepaid debit cards as gifts or as a bonus from my employer, for that matter. First, it’s not fee-free if you lose $4.95 monthly. Second, I’ve never had a successful transaction with one of these cards if my total exceeded the card balance (it may be that cashiers don’t understand how to run the cards for set balances). So you end up in the position of buying something for as close to the exact amount as possible and foregoing part of your balance.

    Of course, check cashing business charge exorbitant fees and are unregulated in many places so whether this would cost more or less than using a check cashing company depends on location. I think a better idea is to require a savings account (if you can get your act together to file for a tax refund, you have enough documentation to open a savings account) and then to transition to only making electronic refunds.

    • Strebkr says:

      I’ve gotten them from my work before. The key is to know exactly how much is on the card. When the balance gets really low, finish it off at a gas station. You have to go inside and tell them exactly how much you have on it. Pay at the pump never works with those cards.

    • govenar says:

      I’ve never had a problem using a prepaid debit card for part of the balance and another card for the rest; I think any big grocery store / drug store / restaurant knows how to do it.

  5. billsnider says:

    Do you know if I can deposit the amount into my checking account?

    Bill Snider

    • Strebkr says:

      Yes, there is a spot on the bottom of your return to put your routing and account numbers. It will direct deposit in a few days.

  6. skylog says:

    i can see why they are looking into this, as it could help those who have to wait for a paper check; but i do not like the idea of any card with fees. that said, the best case scenario would be for everyone to simply have an account that could be used for direct deposit.

    • Strebkr says:

      I was kind of surprised by that number of how many people don’t have accounts. My guess is that it represents people who do not have documents that would enable them to open such accounts.

      • cjo says:

        I have a friend that opts to use the RAL loans via debit card, time and again, even thought she does not have any idea of the fees associated. When asked why she just doesn’t use direct deposit, she informed me that neither her or her husband can open a bank account due to bad credit.

  7. lostAnnfound says:

    I don’t like the idea of getting a debit card. It makes it too easy to spend any refund you may get. We usually put our refund in our savings account. I would prefer to see electronic or direct deposit refund instead of a debit card.

  8. Yana says:

    No. I think this is another way to exploit poor people, and those who are financially less savvy. It would only be worth considering as an option if there were no fees under any circumstance, and if the card could be converted to cash at no charge. Tax refunds are the citizens’ own money, and they shouldn’t be further exploited to get it. If it were that way, I can see this being an option for the unbanked.

    Personally, if I were owed a refund, I’d want a check. When doing taxes this year, I had the option of having our taxes paid by having the money removed from a bank account. I declined, and wrote checks. I realize that the check displays our bank info, but I am still more comfortable doing that than giving the bank info so that money can be removed from my account. I don’t care to give the government my bank info, whether to add or deduct from my account. Though I would have been glad to pay the taxes online through Bill Pay, but since I had stubs to send, I thought writing checks was the best thing to do.

    • Sharon says:

      I agree 100%. My daughter opted for one for her tax refund. They deducted a $3.00 monthly fee upon issue. She didn’t realize there was a “per day limit withdrawal” and tried three times to withdraw funds. All attempts were denied but, they charged $2.00 for each attempt. The utility companies do not accept debit cards. If there is inactivity on the card (which is unlikly!) for 60 days, the amount left is forfieted. I have driven her around for four days to get her money off it!!! I would not recommend it.

  9. Sonya says:

    As a concept this sounds like a great idea but once put into practice it can be problematic especailly if there are glitches in the system. Nothing beats cold hard cash.

  10. zapeta says:

    I don’t think its a bad idea to offer refunds on a prepaid card for those who don’t have a bank account, but it shouldn’t have fees. I like the idea of it being tied to some kind of savings account but I doubt most people will find that useful.

  11. Shirley says:

    I agree with zapeta. If a taxpayer has no checking account, they should be able to opt for a debit card with no fees. However, in case they have no banking or debit card experience, there had better be step-by-step easy to understand instructions with it.

    • Strebkr says:

      Yes, this concept of the debit card might be 2nd nature to us, but to someone without a bank account, they might get tripped up by it.

  12. cubiclegeoff says:

    If there is no fee, I could see this as a benefit, especially to avoid the refund anticipation loans that are a huge ripoff.

  13. Don C says:

    If it’s optional, then I think I am okay with it. The fees must be clearly explained. Just becasue the charge a fee, doesn’t mean it’s explotive. Taxpayers should have the option of paying the fees or getting the check and then paying fees to cash it.

  14. govenar says:

    Why don’t the people just get bank accounts?

    • Shirley says:

      Imagine someone living hand-to-mouth or payday-to-payday, with a low paying job and no credit history available. (Aren’t you happy that’s not you? :-) )

      Many banks and CUs will not give them a checking account without them also agreeing to a savings account with a specified minimum amount. If setting aside (going without) that amount is not possible, they simply can’t get an account.

  15. I don’t use debit cards, I don’t want a debit card, I want cash!!!!!

    My tax refunds go directly into a Roth IRA. How exactly am I supposed to move $2,500 from a flicking debit card to Fidelity?

    If they give you a choice, fine. But here in AZ, the Department of Economic Security tries its level best NOT to give you a choice when it disburses Unemployment Insurance. You’re handed a debit card and warned that the bank will have all sorts of ways to zing you for this fee and that fee — and they’re not kidding. You have to raise He!! and put a block under it to get them to direct-deposit cash.

    • Strebkr says:

      Couldn’t you just use the debit card to go get cash and then deposit it at your regular bank?

      • Erik says:

        I’m pretty sure you can’t cash these prepaid debit cards (at least from what I’ve heard about other prepaid debit cards)

        I would be quite annoyed if someone handed my a prepaid debit card, it’s my money, let me do what I want with it :/

        I suppose this is good news for people without bank accounts, but I just can’t understand why they don’t have them in the first place. I know citibank and bank of the west both offer fee free checking and saving with no minimum balance. Even if you keep $5 in the account you’ll save a lot in check cashing fees etc etc.

  16. eric says:

    More options can be better I guess. But for me direct deposit is still the way to go…cash in the bank!

  17. Ryan says:

    No thanks, direct deposit for me.

  18. daenyll says:

    for me I go direct deposit, but see no problem with debit cards if there are NO ASSOCIATED FEES. With the fees though, this is definitely a disadvantage to anyone who can’t get/doesn’t have a bank account. The government is in essence helping to exploit these people, by offering a quicker option that if not understood will end up seriously costing them in the end. What was the point in all the consumer credit card protection if the IRS is now going to help an even shadier practice?

  19. Michelle says:

    This is a horrible idea, and is aimed to take advantage of people. These sound similar to bank issued gift cards, which typically expire and/or charge fees if not used over a period of time, which dissipate the value of the card. Through this idea, if ever adopted, the IRS, or the bank that purchases the accounts, is banking on people not using the money available on the cards, and the money, or a portion thereof, reverting back to the issuer. This to me is no different than the so-called “rebates” that companies now offer, where you get a debit card instead of cash. Bad idea, and everyone should steer clear.

    • Strebkr says:

      While I hate rebates because they are designed to make people fail, the debit cards do work for people who have no banks. Yes those people are paying more by not having a bank, but for whatever reason, thats what they do.


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