Treasury Announcement TG0843, Sep. 2, 2010
IRS has announced a new pilot plan under which “unbanked” and “underbanked” taxpayers will be provided with safe, low-cost financial accounts that they can use, among other things, to receive direct deposits of their tax refund checks instead of paper refund checks that they must take to high-cost check cashing services.
Current law. Individuals filing Form 1040, 1 Form 1040A, 2 or Form 1040-EZ 3 can elect on the form to have their refund directly deposited to a checking or savings account, including an individual retirement account, at their bank or other financial institution, such as a mutual fund, brokerage firm, or credit union. Also, credit cards can be used to make tax payments. However, under the tax refund rules currently in effect, no special provision is made for taxpayers who don't maintain bank accounts or who are “underbanked,” i.e., have bank accounts that don't meet their needs. This means that unbanked and underbanked taxpayers can't take advantage of IRS direct deposit refund procedures. They must instead receive paper refund checks, and must turn to high-cost alternatives such as check-cashing services.
New pilot program. IRS announced that it will launch a new pilot program to provide unbanked and underbanked taxpayers with access to safe, low-cost financial accounts. This pilot plan will deliver targeted offers to certain low and moderate income individuals to sign up for new accounts with debit card access at tax time in order to receive their refunds through direct deposit. It will also test offering accounts that can be used year-round in the future to deposit other sources of income, store money safely, make purchases, pay bills, withdraw cash, and build savings.
Program to launch next tax season. The pilot plan is expected to launch during next year's tax return filing season. IRS will reach out to eligible taxpayers in early 2011 by two different methods. Under the direct mail method, IRS will mail information about how to sign up for the new accounts to low and moderate income individuals who have received paper check refunds in prior years or who otherwise have not provided bank account information to IRS. Under the payroll outreach method, IRS will partner with the private sector to insert offers to enroll in the pilot plan into the paychecks and paystubs of select individuals who are not currently using direct deposit to receive their tax refunds.
IRS points out that unbanked and underbanked individuals often face difficulties saving and planning for their financial futures, making them more vulnerable to medical or employment emergencies and threatening their ability to invest in education, purchase a home, or send their children to college.
Unbanked and underbanked Social Security benefit recipients already have special deposit program. Social Security and Supplemental Security Income benefit recipients can currently receive their payments through the Direct Express® Debit MasterCard® card, a program established under terms approved by IRS. By 2011, Direct Express is expected to expand to all individual federal benefit programs. Although IRS hasn't yet provided any particulars of the pilot plan for taxpayers beyond what's outlined above, the pilot plan might involve an extension to some taxpayers of the one already in place for Social Security beneficiaries.
Link to view text of “Treasury Department Announces New Pilot to Help Deliver Safe, Low-Cost Financial Accounts to the Unbanked and Underbanked During Tax Season,” Sept. 2, 2010: http://www.ustreas.gov/press/releases/tg843.htm.
Research References: For direct deposit of tax refunds, see FTC 2d/FIN ¶ T-5610; United States Tax Reporter ¶ 60,114.08; TaxDesk ¶ 802,011. For tax payment by credit card, see FTC 2d/FIN ¶ S-5756.1A; United States Tax Reporter ¶ 63,114; TaxDesk ¶ 55,982.
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