Income tax returns for people without financial institution accounts are becoming a problem in the era of electronic banking and income tax filing. There is a recommendation from the Treasury Department to give income tax return debit bank cards out to help this. People without financial institution accounts, the so-called “unbanked” or “underbanked,” do not benefit from the electronic funds transfer of a tax refund to a bank account from the IRS. Weeks are taken for tax refund checks to get to the right place. Unbanked individuals often resort to costly “refund anticipation loans” to obtain their cash easily. Also, taxpayers pay enormous amounts of dollars to the printing and mailing of these checks.
Tax refund debit cards accessible
The biggest advantage offered by tax refund debit cards is speed. Income tax refund checks take six weeks to come within the mail while even a direct deposit can take eight to fifteen days to show up within the financial institution, says the Associated Press. Those without bank accounts may feel forced into borrowing. A return anticipation loan then comes with steep fees. Starting next year, a pilot tax refund debit card program will be offered to several hundred thousand taxpayers. The tax refund debit cards will work like checking accounts — without the checks or the financial institution. The cards will be insured like financial institution deposits and will contain consumer protections from unauthorized purchases if they’re lost or stolen. Bill-paying services could be stored on the cards also.
Taxpayers and financial institution accounts
Tax refund debit bank cards will benefit 26 million working class people. This figure comes from the Center for Economic Progress. The number came by subtracting 70.3 million, direct deposit refunds from the 2010 tax season, from tax refunds of 96.3 million. Automated Trader reports on the purpose of the program. Evidently the Obama administration wants more people to determine how easy it is to have a bank account. Congress received a $50 million request to fund a program called “Bank on USA.” This is to help low-to-moderate income taxpayers work with states in getting into banking. In 2009, the FDIC did a survey on households with financial institution accounts. About 9 million households have them.
Trying to stop refund anticipation loans
The tax refund debit card initiative is part of a broader program by the Obama administration to curtail federal policies that lead to risky financial decisions and provide people with better financial alternatives. Last month there was already a policy change announced, says the Wall Street Journal. beginning in the 2011 income tax season, the Internal Revenue Service will no longer provide income tax return businesses with “debt indicators” used by banks to process refund anticipation loans. The move makes it harder for banks for making the short-term loans, which come with high fees that pencil out to annual percentage rates from 50 percent up to 500 percent.
Associated Press
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Automated Trader
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