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More than ever before, taxpayers are choosing digital tools to file their tax returns and receive refunds. The latest numbers show 4 out of 5 taxpayers filed electronically in 2016 using a professional tax preparer or online software. Of those taxpayers who qualified for a refund, 8 out of 10 chose to have the money deposited directly into a bank account rather than waiting for a check to arrive by mail.
The growth in digital tax tools use is due in part to IRS mandates. Paper returns require more man hours to process; costing more and lengthening the time to receive a tax refund by weeks or months. The IRS now requires most tax preparation professionals to file all tax returns and attachments electronically. While under no mandate, more do-it-yourself taxpayers with simple tax returns are choosing to use the internet to prepare their returns using the IRS Free File software, and send electronically prepared returns through IRS e-File. This trend reflects security and privacy concerns as well as worries about delays that can come from paper filings and paper checks.
Combining IRS e-File with the direct deposit program is the fastest way to receive a refund and the transaction is free. Most refunds are issued within 21 calendar days once the IRS receives a tax return. A taxpayer may request that their refund be split into deposits in up to three separate financial accounts. There are also options to purchase savings bonds, have a portion of a refund deposited into an Individual Retirement Account or make a deposit into an account with a pre-paid debit card. A refund should only be deposited into an account or accounts that are in the taxpayer’s own name or spouse’s name, if it’s a joint account.
Tax agency officials try to reassure taxpayers the system used to receive tax records and payments as well as send refunds is the safest system available. In the fall of 2015 and again in January 2016, new IRS software updates crashed the system and a small part of its online payment collection system was hacked causing delays and the need to reset taxpayer pins for security.
Today, the IRS uses the same electronic transfer system for refunds that is used to deliver almost all Social Security and Veterans Affairs benefits to millions of accounts. It combines built-in security protection tools with layers of online protection programs provided by banks and financial institutions.
You can request the electronic direct deposit option to receive your refund even if you file a paper return by mail; yet know that processing a paper return takes the IRS on average two months longer than processing a digital return. Requesting a direct deposit of your refund will not speed up the processing time.
If you have questions about the direct deposit option for income tax refunds, please contact one of our tax preparation specialists at McRuer CPAs for more information.
