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State-Managed Alabama Refund & Tax (SMART)
 

Primary Theme: Public Policy & Advocacy 

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Secondary Themes: Financial Management; Equity, Diversity & Inclusion (EDI); Governance & Leadership; Program Evaluation & Impact; Technology & Digital Access; Small Business Entrepreneurship 

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Geographic Focus: State-Level (Alabama), with National Model Potential ) 

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Summary: The Alabama State-Managed Tax Filing & Refund Advance Program proposes a unified, state-administered platform for filing both federal and state taxes, coupled with an equitable refund advance system. Modeled after the discontinued IRS Free File initiative, this program eliminates predatory fees charged by private tax preparers and offers a flat \$50 fee for comprehensive filing and refund services. By integrating digital infrastructure, fintech partnerships, and consumer protections, Alabama can modernize its tax system, reduce financial burdens on low-income households, and generate sustainable revenue. The program aligns with Alabama’s 2025 legislative goals and positions the state as a national leader in equitable tax reform. 

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Key Data Points: 

  • Private tax filing and refund services cost taxpayers \$245–\$378 per return. 

  • The proposed flat fee of \$50 could save Alabama residents \$409.5M–\$688.8M annually. 

  • The state could net \$28M–\$75M annually after implementation costs. 

  • Implementation costs range from \$30M–\$77M, including software, fraud prevention, and customer support. 

  • Revenue potential: \$105M annually with full participation (2.1M filers). 

  • Fintech partner Fiserv processes \$2.8T in U.S. tax payments and supports 50M+ benefit cards. 

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Policy Relevance: This initiative supports Alabama’s goals for limited government, transparency, and poverty reduction. It aligns with national strategies for financial inclusion, digital modernization, and equitable access to public services. By reducing reliance on private tax firms and offering a secure, low-cost alternative, the program promotes economic empowerment and fiscal responsibility.  ​

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Implementation Strategy

  • Digital Platform: Unified portal for federal and state tax filing. 

  • Security & Verification: Identity checks, fraud prevention, and encrypted transactions. 

  • Automated Operations: Refund advance disbursement and compliance tracking. 

  • Governance: Amendments to Title 40 of the Alabama Code; fintech oversight. 

  • Equity & Inclusion: Flat fee model accessible to all income levels. 

  • Pilot Launch: Integration with My Alabama Taxes (MAT). 

  • Statewide Expansion: Scaled rollout with fintech support and legislative backing. 

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Author(s) / Organization: Shamirah D. Ross-Gowdy, B22 PARK, INC. 

EXECUTIVE SUMMARY 

This proposal recommends that the Alabama Department of Revenue (ALDOR) implement a state-managed tax filing and refund advance program modeled after the former IRS Free File initiative. The program would allow Alabama residents to file both federal and state taxes through a unified portal and receive refund advances without the high fees typically charged by private tax preparers. Alabama would serve as a national model for equitable, efficient, and affordable tax services. 
 

Current Landscape 

  • My Alabama Taxes (MAT) currently allows free state tax filing but does not support federal filing. 

  • Refund advances are not offered by the state and are only available through private companies, often with high fees or interest. 

  • The IRS Free File program has been discontinued, leaving a gap in accessible tax filing options for low- to middle-income taxpayers. 

EXECUTIVE SUMMARY

OVERVIEW 

Goals 

  • Expand Alabama’s tax filing system to include federal returns. 

  • Offer state-managed refund advances for both federal and state returns. 

  • Charge a flat \$50 fee for filing and refund advance services. 

  • Eliminate predatory fees from private tax preparers. 

  • Position Alabama as a national leader in tax innovation and equity. 

 

Average Cost of Tax Preparation at Private Firms 

According to the National Society of Accountants and CPA industry data: 

  • Simple Form 1040 (no itemization): \$220 

  • Itemized Form 1040: \$323 

  • Form 1040 with Schedule C (self-employed): \$457 

  • Complex returns (multiple forms): \$500–\$1,000+ 

 

Additional Fees: 

  • Amendments: \$50–\$300 

  • Disorganized records: \$165–\$170 

  • Consulting services: \$150–\$160/hour 

 
Summary of Financial Burden on Taxpayers 

  • Refund Advance (RAC/RAL) Fees: \$25–\$55+ 

  • Tax Preparation (Basic Return): \$220–\$323 

  • Combined Cost (Advance + Filing): \$245–\$378+ 

 

National Use of Refund Advances 

General Usage 

  • In 2023, 21.9 million out of 138 million electronically filed tax returns (≈15.9%) used a refund-related financial product. 

  • Of these: 

  • 96% used a Refund Anticipation Check (RAC). 

  • 4% used a Refund Anticipation Loan (RAL). 

 

Demographic Insights 

  • Lower-income taxpayers (earning under \$40,000) were significantly more likely to use refund products. 

  • African-American households were 36% more likely to use refund advances than white households. 

  • Single parents, young adults, and Earned Income Tax Credit (EITC) recipients were among the highest users. 

  • Usage is spatially concentrated in poorer communities, even after controlling for income and filing status. 

 

Behavioral Drivers 

  • Most users rely on refund advances to: 

  • Pay pressing financial obligations (rent, utilities, medical bills). 

  • Cover tax preparation fees. 

  • Access funds faster than waiting for IRS processing. 

 

Financial Impact on Taxpayers 

Total Consumer Spending 

  • In 2023, taxpayers paid over \$842 million in fees for refund anticipation checks alone. 

  • In 2017, over 20 million taxpayers spent \$500 million+ on refund-related financial products.  

OVERVIEW

COST BREAKDOWN  

Taxpayers who use refund-related financial products and private tax preparation services often face a significant financial burden. Refund Anticipation Checks (RACs) typically cost between \$25 and \$55, and are often bundled with tax preparation fees. Refund Anticipation Loans (RALs) are more expensive, ranging from \$50 to \$150 or more, and may include interest rates as high as 36%. Tax preparation itself varies widely depending on complexity, with fees ranging from \$220 to over \$457. When combined, the total cost for filing and accessing a refund early can easily exceed \$400 per taxpayer, disproportionately affecting low-income households. 

 
Industry Concentration 

  • Just 7 tax preparation companies accounted for 77% of all refund-related products in 2023. 

  • These companies often delay fee disclosures until after the return is prepared, making price comparison difficult. 

 

Estimated Implementation Costs 

Implementing a state-managed tax filing and refund advance program in Alabama would require a multi-faceted investment. The software development and maintenance costs are estimated between \$5 million and \$15 million, depending on the scale and complexity of the system. Data integration and reporting, which involves syncing with federal systems and financial institutions, would cost approximately \$2 million to \$5 million. To fund the actual refund advances, Alabama would need a Refund Advance Capital Pool of \$20 million to \$50 million, which could be managed directly or through a fintech partner. Customer support and outreach, including taxpayer education and technical assistance, would require \$1 million to \$3 million. Finally, fraud prevention and identity verification systems—critical for protecting taxpayer data and ensuring compliance—would cost between \$2 million and \$4 million. 

 

Revenue & Economic Impact 

With a \$50 flat fee: 

  • 500,000 filers → \$25 million 

  • 1,500,000 filers → \$75 million 

  • 2.1 million filers (100%) → \$105 million 

  • 1.785 million filers (85%) → \$89.25 million 

 

This revenue can offset implementation costs and fund future enhancements. 

COST BREAKDOWN

LEGAL FRAMEWORK  

Amendments to Title 40 of the Alabama Code 

  • Chapter 18: Authorize refund advances and define terms. 

  • Chapter 30: Expand electronic filing to include refund disbursement. 

  • Chapter 2A: Add consumer protections and dispute resolution. 

 

New Legislation 

  • Establish a Refund Advance Fund. 

  • Authorize fintech partnerships. 

  • Cap fees at \$50. 

  • Define eligibility criteria. 

  • Ensure compliance with TILA and state banking laws. 

LEGAL FRAMEWORK

FINTECH PARTNERSHIP RECOMMENDATION: Fiserv 

Why Fiserv? 

  • Processes \$2.8T in U.S. tax payments. 

  • Supports 50M+ unemployment benefit cards. 

  • Offers real-time payments, prepaid cards, and secure APIs. 

  • Compliant with FISMA, TILA, and consumer protection laws. 

 

Potential Roles 

  • Manage refund advance disbursements. 

  • Provide digital infrastructure for filing and payments. 

  • Integrate with MAT or build a new taxpayer portal. 

FINTECH PARTNERSHIP

CONCLUSION  

This initiative will modernize Alabama’s tax system, reduce financial burdens on residents, and generate substantial revenue for the state. By partnering with a proven fintech like Fiserv and enacting the necessary legal framework, Alabama can lead the nation in equitable tax reform.

CONCLUSION
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