Tax Refunds on Debit Cards

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The U.S. Treasury Department plans to launch a pilot program to deliver tax refunds through prepaid debit cards, as an effort to cut the expense of paper checks and aid lower-income taxpayers who don't have bank accounts.

About 600,000 low- and moderate-income taxpayers nationwide, a slice of those earning about $35,000 or less annually, will receive letters inviting them to activate a debit card that can receive direct deposits. The Treasury Department's new program will deliver some tax refunds on prepaid debit cards, giving recipients an alternative to check-cashing outlets.

The program will cost the government about $1.5 million and marks the latest federal effort to send fewer payments by mail. The U.S. still issues an estimated 45 million paper checks a year for tax refunds. Each one costs the government about $1, including the cost of processing roughly 600,000 claims a year for missing checks. Each payment by direct deposit costs the U.S. about 10 cents.

The new Treasury pilot program will provide consumers a debit card that has many features of a checking account, such as free bill paying and free ATM withdrawals at select machines. Consumers also can use the card for shopping, without added fees.

Half the 600,000 offers from Treasury will carry a $4.95 monthly fee, while the rest will be free. The letters will use a mix of messages, including some offering recipients a savings-account feature. Treasury officials said the different approaches will allow them to determine which is most likely to lead consumers to sign up for the card.

Source: PrimePay Blog

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