E-filing 2014 tax returns began today and over the next few weeks taxpayers will be happily filing their returns to get their refund (after that the refunds get fewer and smaller.) Once upon a time, there was a nice chart that told tax pros that if a return was accepted today by the IRS we could expect a refund on specific date. They of course left themselves some wiggle room for problems but the system was pretty accurate. A couple of years ago the IRS stopped the refund chart and now says that 90% of the refunds will be received within 21 days. A refund can be held if the IRS sees a problem on the return. The IRS will issue a refund one of two ways; a paper check or direct deposit into a personal account.
Direct deposit is fairly simple to do. The taxpayer includes their bank account number and the bank’s routing number on their tax return and waits for their money to come to them. In fact, you can split your refund into up to 3 accounts or buy a US Savings Bond with it. The big disadvantage for some taxpayers is having to check with the bank to see if the refund has been deposited. Most banks don’t notify clients when the deposit hits.
Since the early 1990s when direct deposit was created, some tax pros have offered additional refund options to their clients. Today using programs set up by some national banks, the client can have the IRS deposit their refund into a temporary account with that bank. From there, they can choose to have their refund directly deposited into their personal account, sent as a paper check or loaded on a debit card. The draw for most taxpayers who use these programs is that the tax preparation fees can be held out of the refund so there is no upfront cash outlay. Of course, there are extra fees for that convenience.
The IRS will still mail paper checks to taxpayers who choose that option. Some are holdouts who don’t want to give the government their bank information (which they already have.) Many of the checks are sent to taxpayers who don’t have a bank account for direct deposit. With a mailed check, there is always the danger that the check will get lost or stolen.
A new program through Wal-Mart in partnership with Tax Products Group and Republic Bank & Trust is trying to help taxpayers who get refund checks. Direct2Cash allows taxpayers to pick up their refund in cash at their local Wal-Mart. The program is set up when the taxpayer has their taxes prepared at a tax office offering the program. They are given a confirmation number and are notified when their refund is available. Then they pick-up their refund, up to $7,500, in cash at Wal-Mart. Beside the safety issues, Wal-Mart is highlighting their maximum $7 fee compare to the fees at check cashing offices.
Most states offer taxpayers the choice of paper check and direct deposit. However, some states are sending debit cards instead of paper checks. Oklahoma comes to mind. Also, refund options can be limited by some states when the return is not e-filed. Kansas, for example, will not direct deposit a refund from a paper return.
While there are many alternative ways to actually receive a refund, they all come down to by mail or direct deposit.