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Thursday, March 1, 2012

Tax refunds on debit cards - good idea?

A few states are using bank debit cards to issue tax refunds if a taxpayer does not request that the refund be issued as a check or direct deposited to an account. A story in The Charlotte Observer, "S.C. tax refunds could take form as debit card," 2/24/12, notes that this could involve transaction fees for the users. The SC cards are issued by Bank of America and apparently if you only use the cards at merchants or BofA, there would be no transaction fee.

The state says this will save them money. A few interesting concerns raised in the article include how secure the cards are sitting in someone's mailbox and the form will encourage use for spending rather than paying debts.

The Connecticut Department of Revenue Services announced in January 2012 that it would be issued debit cards for tax refunds. Their website notes that security features are built into the cards.

Oklahoma also uses debit cards for tax refunds. The Oklahoma Department of Revenue has information on how to activate it and a set of FAQs to help people use them. The instructions note that there is an inactivity fee of $1.50 per month so holders should be sure to use the card at least once every 60 days. The card lasts for 3 years.

Sounds like a good idea to save the printing of checks, but it still involves the mailing of the cards and security issues. I think states can do more to assist its citizens who do not have bank accounts by setting them up and paying for them. Why not have the states use the mailing cost savings to help low-income taxpayers set up bank accounts? Would a state bank help? California is exploring this and North Dakota has had a state bank for some time.  Can the state and employers help reduce tax refunds by adjusting paycheck withholding?

What do you think?

From CT Dept of Revenue Services website -

Read more here:


Habiba said...

Judging from the article, it seems the issuance of tax refund debit cards has definitely helped state coffers, but how helpful has it been to the tax payers? Firstly, when it comes to the 10 principle of good tax policy reform, it seems this proposal affects the principles of simplicity & neutrality.

It lacks simplicity, as there can be confusions when it comes to the debit card fees and peoples lack of options to choose any other type of refund other than direct deposit. It looks as though a taxpayer would only discover this system when they are filing their return, when he/she was alerted by a tax filing program, tax consultant or media. Individuals who have been dependent on the refund check might find this option a bit of an inconvenience, as the debit cards have added fees. In South Carolina, if an individual wants to close their account there is a $5 closing fee. According to this news article from (New Orleans), “For Laura Guccione, though, since activating the card the experience has been anything but smooth. “I just don't think it's a really good idea," she said. Guccione said she couldn't use the card to buy gas and couldn't reach anyone at the Department of Revenue to ask questions or fix it.”

Neutrality, as it may effect taxpayer’s behavior. Either individual may be motivated to open back accounts, so that they can select the direct deposit option for their tax refunds. Or it might have the opposite effect, where individual may want their refunds in the form of debit cards. Based on this article from The Post and Courier, “For people in that situation, here are the good things about getting a state refund on a debit card: It's possible to use the card like a debit or credit card, but without paying fees; the card has a zero-liability policy to protect cardholders against fraudulent transactions ("subject to certain conditions"); and because the card can't be reloaded, it can't be overdrawn and subjected to overdraft fees.”

Plus, there are other issues that are important as well. Why couldn’t the State choose a state run bank to issue these cards? Why did they have to choose commercial backs? What’s in it for Chase, Bank of America, Visa…etc? Will there be any laws that will keep these institutions from adding future debit card charges?

Lastly, this blog mentions a good point that State can assist low income citizens by helping open bank accounts. As these individuals normally don’t have an account and they are much better off not being charged 2%-5% for cashing at a check cashing place. This will be very beneficial to people who have bad credit score and are unable to open accounts as well.

Article: “State moves to replace tax refund checks with debit cards”; Author: Maya Rodriguez ; Date: March 1st 2012; Website:

Article: “S.C refund debit card carrier fees”; Author: David Slade; Date: February 19th 2012; Website:

Anonymous said...

I have been informed by Chase Bank that although I am the official holder of the debit account, I am not authorized to close it. "Only the State could do that' was Chase's reaction to my request to close the account. No one has been able to assure me that I won't begin to incur fees for an account that I didn't want and am not allowed to close. The State hotline said that once the card is empty, they will close it, but that isn't what Chase is saying. This really stinks to high heaven!

Anonymous said...

I think the debit card idea is simply a bad idea. In my case I had to open an account on-line just to transfer my refund money to my bank. I was required to give personal information including my social security number. In this day and age the last thing I want to do is put my information out there unnecessarily. Now I have an unwanted bank account with no option of closing it. I had to agree to Chase Bank's terms and conditions, so now I'm sure I will be subjected to their junk mail, etc. The customer service number is completely automated and gives no option of closing the account. It's amazing how a government agengy can get in bed with a commercial bank without our choice of institution. I wonder what kind of kick back they are getting for using Chase bank to facilitate these debit cards. Not to mention all the hidden fee pitfalls that they are looking for tax payers to fall into. The government should protect the people from this, not subject them to it. I tried to register a complaint with DRS and the Attorney General to no avail. Confusion seems to be their best scare tactic and I guess it's working. What's next a miro chip in our flesh!!!