Learn How to Get Your Tax Refund by Direct Deposit

It's Fast and Convenient But Mistakes Can Cost You Your Refund

Direct deposit check on desk
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Who isn't eager for his tax refund to arrive? You can wait around at the mailbox for a paper check to snail-mail its way to you, or you can have some or all of your federal tax refund directly deposited to your bank account. The Internal Revenue Service will electronically transfer your tax refund to your bank account – all you have to do is ask. 

How to Request Direct Deposit

All you have to do is indicate your bank's routing transit number, your bank account number, and the type of account (checking or savings) on your tax form.

The IRS will electronically send your entire refund to that one bank account.

You can enter this information on lines 76b, 76c and 76d of the 2016 version of Form 1040. If you want portions of your refund directly deposited into multiple bank accounts, use Form 8888 to split your refund among two or three different accounts.

Triple Check Your Bank Account Information Before Filing 

The IRS says it isn't responsible for errors you might make when you're entering your bank account information on your return or on Form 8888. It has no liability if your refund goes to John Doe because you transposed numbers or entered digit wrong. It won't "cancel payment" of your refund and send a second payment to the correct account. 

You're not totally without options, however. If you catch the error in time, you can call the IRS at 800-829-1040 from 7 a.m. to 7 p.m. Monday through Friday to stop the direct deposit.

 This won't help, however, if the return has already been filed. It's more of a solution if you mail in your return and realize the mistake before the IRS actually receives it.

The IRS might catch some mistakes, such as if you omit a number so the account or routing number is one digit short. In this case, your return won't pass the validation check and you'll automatically receive a check by mail instead.

The same applies if your bank refuses the deposit for some reason. Otherwise, you're pretty much left to deal with your bank to try to get your money back. 

Refunds issued via direct deposit covered by the government's Check Forgery Insurance Fund, either. According to the National Taxpayer Advocate:

"When a paper refund is stolen, the Financial Management System (FMS) verifies that no person negotiated the check and issues a new one to the taxpayer. If FMS finds that the paper check has been negotiated, it conducts additional research, and if it determines the taxpayer was not involved in negotiation of the check, FMS issues a replacement to the taxpayer and charges the Check Forgery Insurance Fund (CFIF). The CFIF is a revolving fund established to settle claims of non-receipt and make sure innocent payees receive timely settlement checks where a third party fraudulently negotiated the original check....

"FMS guidelines state in part, 'If the taxpayer or the taxpayer’s agent gave incorrect account information, neither FMS nor IRS will assist the taxpayer with recovering the funds, and the taxpayer is free to pursue civil actions.' The IRS interprets this guideline as relief from further obligation as long as the account is the one listed on the return. The IRS’s interpretation of FMS guidelines leaves taxpayers with little recourse to recover their stolen direct deposit tax refunds." (Nina Olson, National Taxpayer Advocate, testimony before the House of Representatives, Subcommittee on Crime, Terrorism and Homeland Security, June 28, 1012, Hearing on Identity Theft and Income Tax Preparation Fraud, pages 12-13, pdf.)

What to Do If Your Refund Is Sent to the Wrong Bank Account

If the numbers indicated on your tax return are correct but you didn't receive your direct deposit, call the IRS and ask them to initiate a refund trace to recover your money. If the routing number you indicated on your return is incorrect, contact the bank at which your refund was deposited. You can identify it by looking up which bank is associated with the routing number you entered. This information is available online

Contact the ACH manager at that bank to see if you can persuade him to send the refund back to the IRS, then call the IRS to alert them that the deposit will be coming back. I developed this procedure after helping a client retrieve her refund that was incorrectly deposited into the wrong account. Fortunately, the bank was able to assist my client, but that's not always going to be the case.

Taxpayers may want to consult with an attorney to review their options for taking legal action to recover a refund that was directly deposited into the wrong account.

What to Do If Your Tax Preparer Alters Your Direct Deposit Bank Information

The National Taxpayer Advocate has indicated that some tax preparers are altering the direct deposit bank information to divert funds into their own accounts. This is fraud. Tax refunds should be directly deposited only into the taxpayer's bank account. Contact an attorney to review your options for taking legal action to recover your refund if this happens to you.