1. Money
Send to a Friend via Email

Discuss in my forum

Is Direct Deposit a Safe Way to Get a Tax Refund?

By

Question: Is Direct Deposit a Safe Way to Get a Tax Refund?
How safe is the direct deposit feature for having tax refunds issued directly to a checking or savings account? What happens if there's a mistake in the bank account number or routing number? What can be done if there's a mistake with the direct deposit information?

The IRS prefers to issue refunds via direct deposit. This is faster and cheaper for the agency. But taxpayers should exercise extreme diligence with their direct deposit information, as a mistake can result in losing a tax refund forever. My advice is to always get a check, unless you are 100% sure that your bank information is correct.

Answer: Generally speaking, direct deposit is a relatively safe way to receive your tax refund. That's because there's no check to get lost in the mail and the IRS can send out refunds faster than by mailing a check. However, direct deposit isn't completely safe. In fact, taxpayers who have put incorrect bank account numbers in the direct deposit field have encountered enormous difficulties in retrieving their tax refund, sometimes resulting in losing the refunds forever. By comparison, if a check is mailed to a wrong address or someone other than you cashes a check from the IRS, the IRS has legal and administrative options for retrieving the misappropriated refund money. Those same protections are completely lacking with direct deposit refunds. So my advice is: Always get a check, unless you are 100% sure that your bank info is correct.

The IRS can deposit your tax refund directly into your checking or savings account. The IRS publishes a calendar of when they send out direct deposits and mail out paper checks. You can check Publication 2043 (pdf) to find out when your federal tax refund is likely to be deposited into your account.

Direct Deposit is Available at No Additional Charge

Direct Deposit of your refund is a free service offered by the IRS and state tax agencies. Your tax preparer cannot charge you extra fees for using direct deposit. (This is forbidden by Treasury regulations governing tax professionals.)

Direct Deposit is Usually Safer than a Check

Since there's no check to get lost in the mail or stolen by someone else, getting your refund by direct deposit is considered safer. However, you must make sure your bank information is 100% accurate.

Direct Deposits are Sent out Earlier than Paper Checks

Direct deposit faster because the IRS sends out direct deposits earlier than they mail out paper checks. Generally, the IRS transmits direct deposits a full 7 days before they mail out a paper check.

Double Check Your Direct Deposit Information

Double check your Bank Routing Number and Bank Account Number when you fill out the direct deposit section of your tax return. These numbers are just as important as double checking your name, address, and Social Security Number. If you aren't sure what your bank numbers are, call your bank and ask.

What Happens if You've Accidentally Put Down the Wrong Bank Information?

You should verify your bank account information before sending in your tax return. However, if you discover a mistake in the direct deposit area you should call the IRS immediately at 1-800-829-1040 and ask that the IRS convert the refund to a paper check.

The IRS will assume that the information you put in the direct deposit area is correct and will initiate the direct deposit in as little as eight days. In fact the IRS has said that the "IRS assumes no responsibility for taxpayer error" as a result of inaccurate direct deposit information. (Source: Refund Inquiries on IRS.gov.)

Many taxpayers have reported losing their entire tax refunds simply by having an incorrect direct deposit. This is truly heart-breaking.

What to Do When Your Refund is Sent to the Wrong Bank Account

Verify the direct deposit information on your tax return versus the actual bank routing number and bank account number.

If the numbers you indicated on your tax return are correct, then call the IRS can ask them to initiate a refund trace to recover your refund.

If the numbers you indicated on your tax return are incorrect, then you'll need to deal directly with the bank in which your refund was deposited. You'll know which bank and bank account it is, since you have the bank numbers listed on your tax return.

  1. Find the bank by looking up which bank is associated with the routing number shown on your tax return.
  2. Talk to the ACH manager at that bank.
  3. Persuade the bank to sent the refund back to the IRS.
  4. Call the IRS and explain that the bank will be sending back the refund.
  5. Ask the IRS agent to fill out a Taxpayer Advocate Service Request (Form 911) to route your case to the Taxpayer Advocate Service.
  6. When the Advocate contacts you, explain that you want this incident added to their annual report as a direct deposit error.
  7. In the future, always get a check, unless you are 100% sure that your bank info is correct.

©2014 About.com. All rights reserved.