Pros and Cons of Prepaid Tax Refund Debit Cards

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Pros and Cons of Prepaid Tax Refund Debit Cards

If you’re expecting a tax return this year, your tax preparer may offer you the option of getting it as a prepaid debit card. While this may seem to be a tremendous convenience, there are some drawbacks to consider. This article discusses the benefits and drawbacks of prepaid tax return debit cards.

Key Takeaways

  • Many tax preparation businesses allow you to have your tax return put directly into a prepaid debit card.
  • People who don’t have a bank account, don’t want to wait for a check to come in the mail, or don’t want to employ an expensive check-cashing service may consider this option.
  • However, if you are not attentive, the fees on these prepaid debit cards may significantly lower the value of your return.

Advantages of Tax Refund Debit Cards

Prepaid cards are provided to consumers of tax preparation services such as H&R Block, Jackson Hewitt, TaxAct, and TurboTax. Proponents of the cards highlight the following benefits:

If you lack a bank account. Because you do not have a bank account, you will not be able to receive your refund by direct deposit. You might still get money in the form of a check, but you’ll have to cash it elsewhere. While state rules vary, check-cashing establishments, such as payday lending firms, often charge roughly 3% of the face value of the check for this service. So, if you’re expecting a $3,000 return, you could only receive $2,910. (Keep in mind that if you need to cash a check and don’t have a bank account, certain big-box businesses, such as Walmart, and large supermarket chains, such as Kroger, cash checks for considerably lower costs, often around $10.)

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If you need your refund sooner. Direct depositing your tax return, either into a bank account or onto a prepaid debit card, is generally quicker than waiting for a refund check to come in the mail. If you e-file your return, you may normally anticipate a direct deposit within 21 days, while a check may take 21 to 28 days. Because of the time needed in processing paper returns, you will have to wait longer if you submit a paper tax return.

If you don’t believe the mail. Of course, checks might be lost in the mail, which can be especially problematic if you’ve just relocated. Thieves have also been known to break into mailboxes during tax season in search of refund cheques.

Disadvantages of Tax Refund Debit Cards

If you don’t have a bank account, getting your return on a prepaid debit card is a good option. That convenience, however, comes at a cost, which is the fundamental downside of prepaid debit cards:

Fees may be exorbitant. H&R Block’s Emerald Prepaid Mastercard, for example, imposes a $3 cost for using the card to withdraw cash from an ATM and a $4.95 monthly inactivity fee if you haven’t used your card in 60 days, among other things. The Turbo Prepaid Visa Card from TurboTax costs $4.95 a month unless you load at least $1,000 on it in the previous month (the first monthly fee is waived regardless of the amount); in-network ATM withdrawals are free, but out-of-network withdrawals cost $2.50.

There are certain steps you may do to reduce your costs. Check the card agreement first to ensure you understand the charge structure. If you have an H&R Block card, for example, you need use it at least once every 60 days to avoid monthly costs. If you are unable to put additional $1,000 on the TurboTax card each month (for example, by direct deposit of your salary), you may wish to spend down your amount in as few months as possible.

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An even better option is to create a bank or credit union account, even if you previously assumed you didn’t have enough money to qualify. Some credit unions, known as low-income credit unions (LICUs), for example, have minimal minimum balance requirements, provide check cashing services, and even provide modest loans.

How long do tax refunds take?

According to the Internal Revenue Service (IRS), more than 90% of refunds are issued within 21 days. However, if you submit a paper return, you will most likely have to wait longer.

How can I check on the status of my tax refund?

You may utilize the IRS website’s “Where’s My Refund?” function to check on your refund within 24 hours after e-filing or six weeks of sending a paper return.

How do I know how much money I have on my prepaid card?

You may generally check your balance online or by calling the card’s toll-free customer support number. Check your cardholder agreement to determine if any fees apply before using an ATM to check your amount.

Are prepaid debit cards insured?

The Federal Deposit Insurance Corporation insures many, but not all, prepaid debit cards (FDIC).However, the insurance only protects you if the bank holding your assets fails, not if your card is lost or stolen.

The Bottom Line

Receiving your tax return through prepaid debit card may be more convenient and speedier than waiting for a cheque, and it is an alternative for those without a bank account. However, you may be exposed to a slew of costs that eat away at your return. If you choose this option, be sure to read the card agreement thoroughly so that you may avoid as many costs as possible.

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