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Government to Issue Debit Cards for Tax Refunds

Posted By Miranda Marquit On 02/17/2011 @ 12:42 pm In Taxes | 35 Comments

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 [3] 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 [4], 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?


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[3] pilot program: http://www.bankrate.com/financing/taxes/tax-refund-debit-cards-debut/

[4] Bankrate.com: http://www.bankrate.com

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