Consumers with a bank account can receive their refunds in the same amount of time as a RAC

In the past three years, the IRS has , about 14.6 million taxpayers received a RAC, at a cost of about $438 million. This was a 9% increase from 12.9 million taxpayers in 2009.

The E1 Prepaid Card is issued by Bancorp Bank

Thus, the number of RACs has increased significantly from 2009 to 2010, and exceeds both the number of RALs and the amount paid in fees for RALs. RACs present different issues than RALs. They are less expensive than a RAL, although they are still very pricey for what is essentially a one-time use bank account. A taxpayer who does not have a bank account should be encouraged to open one.

RACs present other problems. Like RALs, RACs permit the taxpayer to have the price of tax preparation deducted from the refund. This practice makes taxpayers less sensitive to the price of tax preparation, permitting tax preparers to hide the ball when consumers might attempt to comparison shop. Furthermore, when taxpayers obtain a RAC simply because they cannot afford the price of tax preparation upfront, the RAC is essentially a loan of the tax preparation fee-and an expensive one at that. Paying $30 to borrow a tax preparation fee of $189 for two weeks equates to an APR of 414%!

In addition to H&R Block’s free RAC, there are a number of other, less expensive products available to enable taxpayers to pay for tax preparation services out of their refund. One such product is QuickCollect from Santa Barbara Tax Products Group, which costs $15, or about half as much as a RAC. Another is the e-Collect system, which is essentially a RAC from EPS Financial. The price for e-Collect varies according to whether the refund is deposited on the E1 Visa Prepaid Visa card ($5 plus another $5 for a state refund), direct deposited to the taxpayer’s own account ($10 plus another $10 for a state refund), or delivered by a check printed at the tax office ($20).

In addition to the RAC fee itself, many tax preparers charge add-on fees, such as “document processing” or e-filing fees, discussed further in Section I.I below. Tax preparers charge these fees for both RACs and RALs. This can significantly add to the expense of a RAC.

In addition to speeding refunds, bank accounts help taxpayers avoid paying check cashing fees

In order to take advantage of the speed of IRS’s typical eight- to fifteen-day refund, taxpayers must have a bank account into which the refund can be direct deposited. Taxpayers without a bank account should be encouraged to open an account to receive their refund, but there are other options as well. Taxpayers without a bank account can have their refund deposited to a prepaid card, including any existing payroll or reloadable prepaid card that the taxpayer already has.

In 2011, the U. S. Department of Treasury conducted a pilot project offering 600,000 low-cost prepaid cards to families who may not have had a bank account to receive their tax refunds. Consumer advocates supported the Treasury pilot, and had hoped it would be expanded nationwide in 2012. However, only 2,000 taxpayers signed up for the card, dashing hopes for its return. The low signup rate may have been due to lack of promotion, as well as the fact that it was offered in mid-January, when tax season was already well underway. Taxpayers had to sign up for the card, wait until Treasury mailed the card to them, and then use the card’s account number for direct deposit– a much more cumbersome process than if the taxpayers were able to check off a box on their tax forms to receive a card https://www.signaturetitleloans.com/payday-loans-id/.

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