Tax Refunds on Debit Cards to Cease

The U.S. Department of the Treasury will no longer issue tax refunds on the MyAccountCard prepaid debit cards, according to the New York Times. The card was used during the 2011 tax season as a pilot program for low- and moderate-income families.

Almost two-thirds of the people in the pilot program never used the cards.

The MyAccountCard was a part of a study by the Treasury to use electronic delivery to provide tax filers faster and safer access to tax refunds. In addition, the program would help the government save money since the study found that electronic delivery is one-tenth the cost of a paper check. Electronic delivery of tax refunds by direct deposit is primarily used by upper-income families, not low-and moderate-income families.

Approximately 800,000 individuals were randomly selected from a population of more than 8 million adults who were likely to be low- and moderate-income (under $35,000 in household income). They were all unbanked or underbanked households.

Overall, 1,967 people or 0.3 percent who received a MyAccountCard offer applied for this prepaid card. The study found that card fees were a reason that many participants did not use the card. Charging a $4.95 monthly maintenance fee versus no monthly maintenance fee decreased MyAccountCard applications by 42 percent.

One of the benefits of the debit card refunds was that it can bring access to mainstream financial services and reduce low- and moderate-income tax filers' use of expensive alternative financial service outlets to cash their checks, as well as the use of refund anticipation checks.

The Treasury ended the program, but other states are adding to refunds by debit card. Alabama just introduced refunds by debit card to reduce fraud as well as save money on processing, printing and mailing checks.