Minnesota tax refunds to go from paper to plastic next year

Wave goodbye to paper check refunds from the Minnesota tax man.

Starting next January, the state Department of Revenue will issue income tax refunds by debit card instead of paper checks.

Most individual tax returns in Minnesota are handled electronically now, with automatic deposit. However, the state still cuts about 1 million paper check refunds every year, some of those to people who don't have accounts at a bank or credit union.

The switch covers individual tax refunds, not corporate ones, and is aimed at cutting costs, reducing the chances of check fraud and helping people operating on the margins of the financial system.

Terri Steenblock, assistant commissioner at the Department of Revenue, said the debit cards will save the state about $400,000. The state will also get refunds to people a month earlier than with paper and will eliminate the need for recipients to go to a check-cashing spot.

She said she hopes it will also reduce the appeal of expensive refund anticipation loans.

People will be able to spend down the tax refund on the debit card over time, as they could with a prepaid debit card, but cardholders can't load more cash on it.

About seven other states have already made the shift, she said. "We really wanted to research it and make sure we were doing the right thing," Steenblock said.

The project is still in the early stages. The agency is determining how it will vet card issuers to provide the refund cards.

Like other electronic refunds, a tax refund by debit card will arrive about a month earlier than a paper check, Steenblock said. That's because the paper checks have to go through three state agencies, she said.

"We can eliminate all these agencies having to touch that transaction," she said.