The Federal government has launched a new pilot program testing the viability of giving over half a million low income Americans their tax refund via pre-paid debit cards instead of the traditional paper check. While the cards will cost money ($1.5 million has been budgeted by the government so far), it will save on the check printing costs and ensure that the refund money doesn't end up in the pockets of check cashing businesses that charge outlandishly high rates to convert the paper check into cash for people without a traditional bank account.
The new program to load prepaid debit cards with tax refund money instead of sending paper checks is meant to help people with low incomes because they are less likely to have a relationship with a mainstream financial institution than their higher income peers. Instead of patronizing banks or credit unions, the target population typically relies on check cashing services that charge relatively enormous fees. In response, the Federal government is issuing 600,000 debit cards that can be used anywhere a normal card could be used, without the exorbitant fees.
Getting a Card
The pre-paid debit cards that eligible tax payers can use instead of receiving a paper check are available directly from the Federal government for people who opt to receiving it from them. The government has budgeted $1.5 million, which will include the manufacturing cost of these cards. If you have a pre-paid debit card already, such as a Walmart Money Card, which are available at retail stores for a few dollars, you can specify the account number when you file your tax return.
The government-issued pre-paid debit cards have liability protection for the recipient of the tax refund. Should the card become lost or stolen, the person who had the card won't be responsible for the loss, and they will get their money back. Critics warn that the liability insurance is through the card issuer, in this case Visa, and not federally mandated, so it may not be a solid protection. As usual, the best policy is to keep your card safe and secure.
While the pre-paid debit card is a good option for those low income taxpayers who do not have a traditional bank account, there are several other optional ways to receive a refund check. You can opt to receive a paper check through the U.S. Postal Service. If you don't have a bank account, many businesses will cash the check for you for a fee. If you have a bank account, you can simply deposit the check into your checking account once the check arrives. Alternatively, if you have a bank account, you can specify on your return that you want to receive a direct deposit. You just need to give the IRS the name of your bank, your account number, and the routing number.
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