Tax returns for individuals without bank accounts are becoming a problem within the era of electronic banking and tax filing. The solution, says the Treasury Department, are income tax refund debit bank cards. People without bank accounts, the so-called “unbanked” or “underbanked,” do not benefit from the electronic funds transfer of a income tax return to a bank account from the IRS. Tax refund checks can take weeks to arrive. Rather than waiting for that check to arrive, “refund anticipation loans” are usually taken out by the without a bank. Plus, the overhead of printing and mailing checks costs millions of taxpayer dollars.
Tax refund debit cards available
Tax refund debit cards will make the process faster. Tax return checks take six weeks to come within the mail when even a direct deposit can take eight to fifteen days to show up in the bank, says the Associated Press. Those without bank accounts may feel forced into borrowing. A return anticipation loan then comes with steep fees. Various hundred thousand could be acquire a debit card with the pilot tax return program starting next year. The tax refund debit cards will work like checking accounts — without the checks or the financial institution. The cards could be insured like bank deposits and will include consumer protections from unauthorized purchases if they’re lost or stolen. Bill-paying services can be stored on the cards also.
Taxpayers and financial institution accounts
26 million working class people, according to the Center for Economic Progress, might benefit from income tax return debit cards. 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. A $50 million request has been submitted to Congress for the 2011 spending budget to create “Bank on USA,” a program to help support state and local efforts to obtain more low-to-moderate income taxpayers into mainstream banking. About 9 million households have bank accounts, as shown in a FDIC 2009 survey.
Stopping return anticipation loans from happening
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 individuals with better financial alternatives. The Wall Street Journal reports that the most recent policy change was announced last month. beginning within the 2011 tax season, the IRS will no longer provide tax return businesses with “debt indicators” used by banks to process refund anticipation loans. The move makes it harder for banks to make the short-term loans, which come with high fees that pencil out to annual percentage rates from 50 percent up to 500 percent.
Additional reading
Associated Press
google.com/hostednews/ap/article/ALeqM5gjOACVZgIYIFoYxqpOl-uISuMxiAD9HVPC6G3
Automated Trader
automatedtrader.net/real-time-dow-jones/14805/-us-treasury-to-offer-low_cost-bank-accounts-for-tax-returns
