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Direct Deposit of Tax Refund Facts

IRS Direct Deposit of Tax Refund

These days with the Refund Anticipation Loan on its last legs, direct deposit is the taxpayer’s best option for getting their tax refund as quickly as possible. Taxpayers who e-file their return will receive their refund within two weeks compared to within three weeks for a paper check. For paper return filers, taxpayers who request direct deposit will receive their refund within four to six weeks, while those who want a paper check will wait for approximately six weeks.

Here are some facts to remember about direct deposit of a taxpayer’s refund:

Requirements for Direct Deposit
The IRS will electronically deposit refunds to taxpayers’ accounts held by a U.S. financial institution, provided:

  •   They have an accurate account number and ABA routing number; and
  •   The financial institution accepts direct deposits for the type of account designated.

Types of Accounts Taxpayers Can Choose
Examples of the types of accounts taxpayers can choose include, but are not limited to:

  •   Regular checking or savings
  •   Brokerage accounts
  •   IRAs
  •   Health Saving Accounts (HSAs)
  •   Archer MSAs
  •   Coverdell education savings accounts

Direct Deposit to More Than One Account
Using Form 8888, the taxpayer can directly deposit their refund (or part of it) to more than one account – for example to a checking account and to an individual retirement arrangement (IRA). Using Form 8888 would save the taxpayer the trouble of waiting for the direct deposit and then writing a check for the IRA. They can also use Form 8888 to buy U.S. savings bonds. The taxpayer cannot have their refund deposited into more than one account if they file Form 8379, Injured Spouse Allocation.

Reasons a Direct Deposit May Be Rejected
If any of the following apply, the taxpayer’s direct deposit will be rejected and they will receive a paper check instead:

  •   Their financial institution will not allow a joint refund to be deposited to an individual account;
  •   They request a deposit of their refund to an account that is not in their name;
  •   They file their 2011 return after December 31, 2012.

Errors in Account Numbers or Routing Numbers
Taxpayers should verify their routing and account numbers with their financial institutions. Although a checking account routing number can usually be found on the face of a check, routing numbers for other types of accounts are not always apparent. An error in entering information could result in different scenarios:

  •   If a taxpayer omits a digit from the account or routing number and the number does not pass IRS’ validation check, the IRS will mail a check for the entire amount of their refund to the address on the return;
  •   If the taxpayer incorrectly enters an account or routing number and a designated financial institution rejects and returns the deposit to the IRS, the IRS will issue a check for that portion of the refund;
  •   If the taxpayer incorrectly enters an account or routing number and the financial institution accepts the deposit, the taxpayer must work directly with the financial institution to recover their money.

Adjusting Deposits for Errors and Offsets
Several factors could change the amount of a refund – a math error can increase or decrease a refund. Refund offsets for delinquent federal or state taxes, child support payments, student loan payments and freezes on the Earned Income Tax Credit portion of a refund also can decrease the amount of refund available for deposit.

If the taxpayer is entitled to a larger refund, the IRS will add the difference to the deposit. In the event of a deposit split between accounts, the IRS will add the increase to the last account designated. For example, a taxpayer return shows a refund of $300 and the taxpayer asks the IRS to split the refund between three accounts, depositing $100 in each. However because of an error the correct refund is actually $450. The IRS will deposit $100 to each of the first two accounts and the third account will receive a deposit of $250.

If the refund is smaller than expected, the IRS will deduct the difference from the amount designated for the last account listed. If the difference exceeds the amount designated for the last account, the IRS will subtract the remainder from the next to last account and so on. The taxpayer will receive a letter from the IRS explaining any return adjustments.

If the IRS withholds or freezes the EITC portion of the refund while awaiting additional information to verify eligibility, they will deposit any non-EITC portion of the refund as discussed above. If they later determine the taxpayer to be eligible to receive the EITC, the IRS will deposit the amount into the first account designated.

Where’s My Refund
Whether taxpayers directly deposit their refund into several accounts, one account or opt to receive a paper check, they can use the Where’s My Refund? feature to track their refund. Where’s My Refund? will include a message confirming the refund was split and the expected date of deposit. It will not specify the amount of the individual deposits or the accounts in question. It will state the amount of an adjustment, if IRS or FMS (Financial Management Service, which disburses IRS refunds) altered the amount of the refund due to math errors, offsets or other reasons. Refund information is also available by calling 1-800-829-1954.

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