In an attempt to save money and give taxpayers without bank accounts easier access to their state tax refunds, the state of Georgia is mailing debit cards instead to checks to select residents under a pilot program intended to start the phase-out of paper checks.
Nothing changes for users of electronic direct deposits.
The debit cards will spare low-income taxpayers without bank accounts the need to pay fees to a check-cashing service.
The program is similar to one announced in January by the federal government, which has offered about 600,000 low- and moderate-income taxpayers the chance to receive their federal tax refunds on a debit card. The aim was to send fewer paper checks — which cost $1 each, compared with 10 cents for an electronic transfer — and to provide an alternative for taxpayers with no bank accounts. Some of the cards will come linked to a savings account as well. The program will cost the government about $1.5 million. It spends about $45 million a year on paper checks.
According to an FDIC survey, about 9 million households, or about 1 in 12 people, do not have bank accounts. Banks shut out poor customers with policies like minimum account balances, and some customers cannot afford the overdraft charges and other fees. Taxpayers must pay a fee to receive a paper check and, without a bank account, another fee to cash it.
Hopefully, the debit card users will enjoy more privacy, safety and a quicker experience. Plus, the process is relatively simple. No major transition is required as the procedure is identical to paper refund checks. And debit card holders can take out the money for free from some ATMs and can use the cards for purchases.
Card users in both the Georgia and federal programs will fill out surveys to help evaluate their success. The Treasury is actually sending out four different pilot cards — some with a $4.95 monthly fee and some with a savings account — to gauge which are most effective.
While it is great the government is getting involved, it is always a balancing act. Some Republicans in Congress have criticised the savings accounts in particular as an overstep into a matter that should be handled by the private sector. But hopefully, the new programs will give the bank less an easier time with their taxes.