Readers question rebate delivery methods

I've gotten loads of questions from readers about how they can get their rebate money ASAP. Essentially, they want it directly deposited, either into a bank account or loaded onto the prepaid card they got from a tax preparation chain.

Unfortunately, for most of these folks, the news is not what they want to hear.

Direct deposit do-overs: First, let's look at the direct deposit to a bank account issue. I totally understand the frustration of folks like Cinthia, who told me:

"I had problems getting my check direct deposit on my tax return because Turbo Tax put in the wrong code for the account and the bank rejected it. I ended up getting a paper check. Now can I call [the IRS] and give the bank info and get direct deposit on this rebate?"

Sorry, Cinthia and Ian and Seconds and the many others who've asked. But the reality of processing millions of tax returns -- around 97 million filed by the first week of April -- is that you're stuck awaiting a paper rebate check delivered via the U.S. Postal Service.

If you didn't put that bank information on your 2007 return, for whatever reason, your fault or not, there's no way to backtrack now. The IRS just isn't able to pull selected returns at taxpayer request, add information to the 1040 and then put the form back in the return processing bin.

The good news is that some paper rebates are already going out, too, despite the previously announced (and then accelerated) delivery schedules. I spoke with a woman Wednesday who had already gotten her actual, old-fashioned Treasury check for her rebate amount.

Prepaid card problems: Then we have the folks who used a paid preparer and got their refunds via prepaid plastic, e.g., Jackson Hewitt's ipower Visa card and H&R Block's Emerald MasterCard. Depending on just what was on those prepaid cards, your rebate might or might not show up on those pieces of plastic.

Some folks (the ones writing me) are upset because back when they did their taxes at these franchise offices, they said the marketing material referred to having your refund "directly deposited" into your card account.

Now, however, many taxpayers who used this alternative are finding their rebates won't be handled the same way. Rather than the rebate money being "loaded" onto the card, they'll get paper, mailed checks.

I talked to an H&R Block spokeswoman today who first wanted to make it clear that the decision to mail rebates to prepaid card holders "was an IRS decision, not a company decision" on the part of either Block or its competitors.

But -- and isn't there always a "but" when it comes to taxes? -- some tax prep card holders will see their rebate amount show up in those accounts. The determining factor is just how the card was structured when you got it.

So, for all intents and purposes, taxpayers who got a bank product, such as a refund anticipation loan (RAL), or had their tax prep fees paid from the refund amount on the card, will now get a paper check. That's not surprising. The IRS doesn't like being associated with RALs in any form or fashion, so it doesn't want this second, separate tax check commingled with the cards.

But, according to H&R Block, if the card simply was used as a vehicle for the direct deposit of the taxpayer's original refund amount and only that, then the rebate will go on the card, too. So check the terms of your prepaid ipower or Emerald card.

Unfortunately for most of these folks, I suspect the lure of a RAL was the reason for the prepaid card. And in these cases, they'll just have to wait on the rebate.

More rebate Q&As on the way: There are more rebate questions sitting in my e-mail box. I'll try to get to those shortly and let you know what I find out as quickly as I can.

UPDATE May 7, 2008: Information on the IRS' new Where's My Rebate? online tracking tool can be found in this post. And you can read all rebate-related postings by clicking here.

Comments

[Anna Laurin Johnson]

My question is how do you know if you qualify for the rebate

[Kay]

Michelle,
Yes, you should get a letter telling you how much of a rebate you'll get and when to expect it.

If you paid your TaxAct filing fees out of your direct deposit money, you'll get a paper check instead of direct deposit. I know; not fair, but not surprising.

My best advice is to check the Where's My Rebate? page https://sa1.www4.irs.gov/irfof/IRServlet?app=IRACTC and if you still have questions, call the IRS rebate hotline at 1-866-234-2942.

Good luck!
Kay

[michelle]

My taxes were prepared on the TaxAct website and I received my refund direct deposit around the second week of April. I was scheduled to receive my rebate on May 16th, but I haven't yet. Is this the same situation like using H&R Block and Rals? Will I receive a check or direct deposit.

Someone also stated that you will receive a letter from the IRS stating how much you should receive, but I haven't received one. Should I have received a letter if I was getting a rebate?

[Deb]

NO DIRECT DEPOSIT FOR MOST USING COMMERCIAL TAX PREPARERS - Jackson Hewitt, HR Block or other commercial companies for this reason:

Unbeknownst to us - when you chose to have the tax prep fees taken out of your "directly deposited" refund YOU WILL GET PAPER CHECK adding another month to the wait - because your return was not deposited into your account by the IRS. It has gone through the company's banking system and then deposited by them.

If you have not received your stimulus deposit - you may have inadvertently "chosen" an RAC or RAL.

Just an FYI:
A "refund anticipation check" (RAC) is the non-loan bank product that many commercial tax preparers and their bank partners offer in addition to refund anticipation loans (RALs). They are sometimes called "refund transfers" or "accelerated check refunds."
RACs are also commonly provided to taxpayers who do not have the up-front cash to pay for tax preparation. In these cases, the preparer deducts the tax preparation fee from the consumer’s refund when it hits the dummy account, prior to cutting the RAC check to the consumer.
Tax preparers and their bank partners have sold a significant number of RACs. In 2002, about 1.75 million H&R Block customers were sold this product. The main bank partner for Jackson Hewitt, Santa Barbara Bank & Trust, sold approximately 3 million RACs in 2003 and has stated that RACs are actually their most popular tax refund product.

[KIM]

I called the Irs Thursday and friday..yes I spoke to three different people becuase Jackson hewitt was telling me something totally differnt than what the lasy at Irs said and I wanted to know for sure which way to expect my money...The latest is per the irs as of Friday the 2nd of may that the money will be loaded on the ipower cash card to expect mine by or before the 9th..Even though jackson hewitt is saying that it is not..When I had my taxes done I wanted it to be direct deposit I walked out to smoke after the lady had my check informationa nd they load a portion of it on the card with in a couple of hours and the rest a couple of days later and my state was put on there to..But I called and checked and irs says it will be on that card..I hope I could have been of some help ...