The IRS is encouraging financial institutions to inform their customers about bank guidelines for accepting direct deposits as the IRS expands taxpayers’ options for direct deposit of tax refunds. Starting with the 2006 tax year, taxpayers can send their refunds to up to three accounts with up to three different U.S. financial institutions.
The IRS change may enable taxpayers to save or invest more of their refunds. The IRS said that split refunds may help some taxpayers reduce their reliance on refund anticipation loans.
In order to split their refunds, taxpayers must attach Form 8888 when they file their returns. On that form they make the allocations, specify the financial institutions, and give routing and account numbers.
The IRS urged financial institutions to make sure their customers have correct account and routing number information and to encourage customers and tax preparers to double-check the accuracy of this information.
Direct deposit acceptance varies among financial institutions and taxpayers should first verify that their financial institutions will accept direct deposits for the types of accounts they are designating, the IRS said. For example, a financial institution may accept direct deposits for regular savings accounts but not for education savings accounts.
Examples of the accounts to which taxpayers can choose to direct their refunds include, but are not limited to, regular passbook savings or checking accounts, brokerage accounts, IRAs, health savings accounts, Archer MSAs, Coverdell education savings accounts, and individual development accounts, according to the IRS.
The IRS said that in the case of individual retirement accounts the account holders are responsible for informing their IRA trustee of the year for which a deposit is intended and for ensuring that their contributions do not exceed their annual contribution limits. Federal income tax refund direct deposits will not indicate an IRA contribution year.
Taxpayers can split their refunds whether they file on paper or electronically. They can still receive their refunds in a check, but they cannot split refunds between direct deposit and a check.
For information, call 800-829-1040 or visit www.irs.gov.