There are also a number of prepaid card options offered by private companies specifically targeted for delivery of tax refunds, some of which are discussed in Sections II.G, below. There are similar prepaid debit cards available to taxpayers who use free VITA sites.
Regulations issued by Treasury’s Financial Management Service govern the deposit of federal payments, including tax refunds, to prepaid cards. These regulations require that the deposit be subject to FDIC insurance, require compliance with the Regulation E protections for payroll cards, and prohibit deposit to a card that has an attached line of credit or loan feature for which payment is automatically triggered when the federal payment is delivered.
When optional, taxpayers should be cautious if considering prepaid cards. As with any financial product, taxpayers should compare costs and consumer protections when choosing among options. Some types of prepaid cards have lower fees and better protections than others.
Add-on fees are fees separately charged by tax preparers. They are in addition to the RAL or RAC fees charged by the banks. Add-on fees for RALs and RACs appear to be a large source of profits for some preparers.
Some of these examples include:
All three of the major tax preparation chains-H&R Block, Jackson Hewitt, and Liberty Tax-had promised to stop charging add-on fees several years ago. However, Jackson Hewitt started charging add-on fees again in 2010, specifically payday loans West Virginia a “Data and Document Storage Fee” of up to $40. Subsequently, Jackson Hewitt’s contract with Republic Bank & Trust permits Hewitt to charge an additional $30 as a “transmitter’s fee.” Liberty may also be charging a $20 add-on fee.
In addition, tax preparers not affiliated with one of the three big commercial tax preparation chains will often charge add-on fees. There are multiple types of add-on fees. Some of the names for add-on fees that we have observed include:
- Application fees;
- Data and document storage fees;
- Document processing fees;
- E-filing fees;
- Service bureau fees;
- Transmission/software fees;
- Technology fees.
Some preparers will charge several add-on fees. The cumulative impact of add-on fees can be very expensive. Mystery shopper testing by consumer groups found add-on fee totals ranging from $25 to $324 in 2008; $19 to $85 in 2010; and $35 in 2011. Similar mystery shopper testing by First Nations Development Institute found significant add-on fees. A New Jersey court decision documents how a local chain, Malqui Tax, charged a document preparation fee of $134, plus a service fee of $15, to RAL and RAC customers.
In many cases, add-on fees are not actually determined by the tax preparer, but by the software or transmitter company that the preparer uses. In other cases, the provider of the financial product builds in the capability to charge add-on fees, as well as capping them. For example, EPS e-Collect (discussed in Section I.G above) permits preparers to deduct a transmitter fee; a Service Bureau fee (capped at $35); and up to $ in preparation fees (although EPS will “monitor” fees over $400).
Another consumer- related problem faced by taxpayers is the lack of transparency around tax preparation fees. Mystery shopper testing by consumer groups and others has found systemic problems in the ability of consumers to obtain information about how much tax preparation services will cost. There are numerous examples of preparers giving low-ball estimates on preparation fees or even refusing to provide testers with a quote.
F and II
- Several testers in 2010 mystery shopper testing reported that preparers did not provide much information about the cost of tax preparation. Testers recounted how preparers “avoided the question,” “let her know up front that they fees were high, but couldn’t get me the exact amount,” or were told that a preparer couldn’t estimate fees because the “computer did it.” One tester was quoted a price of $70 for tax preparation fees by a Jackson Hewitt outlet, but ended up paying over $400. Another tester reported that she had to argue with a Liberty Tax Service outlet to obtain a 50% discount that the outlet had advertised outside its offices. The preparer also conflated the tax preparation and RAL/RAC fees. Several instances of extremely high tax preparation fees were observed, such as over $400.