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.