Don't Mess With Taxes

What are you planning to do with your refund? Some folks are dividing the money they get from the IRS into multiple accounts, including emergency savings, retirement and even brokerage or mutual fund accounts.

And they're doing so without even touching the cash they get back from Uncle Sam.

Since the 2007 filing season, taxpayers have had the option of having a federal tx refund amount directly deposited into up to three accounts. But over the years, it's also highlighted a potentially costly problem for folks who use this ostensibly convenient way of divvying up their federal tax refund.

If you're not very careful in entering in your account and routing numbers, your refund could be misdirected. And it's darn near impossible to get electronic refunds replaced.

The IRS knows this. That's why it includes that handy little diagram for us in the instructions of Form 8888, the filing you use to designate your refund go directly to multiple accounts. 

Sure, your direct deposit could go astray even when you're having your refund sent to just one account. But the chances for transposed or incorrectly entered info is increased when you're entering multiple accounts.

Privacy protections, problems: The problem with getting an errant electronically deposited refund reissued lies with banking and IRS privacy rules. While these mean that our account information is protected, they also make it hard to double check where the money went.

With a paper check, if it doesn't show up, the IRS stops payment and reissues it. With a misdirected electronic payment, the bank and Uncle Sam can't just go poking into the account to which it was sent.

If your money is sent to someone else's account in error, you have to hope the person who discovers the directly deposited tax windfall will let the IRS and the bank know of the mistake. Even then, though, neither the agency nor the financial institution has any idea where the case was supposed to go.

And there's no mechanism for reissued e-refunds.

I talk about the troubles that could be encountered with a misdirected direct deposit in my other blog, Eye on the IRS.

So remember, if you're asking the IRS to directly deposit any money into even just one account, make sure you enter all the info correctly. And if you're splitting your tax refund into multiple accounts, triple check those figures!

Savings bonds new in 2010: In addition to splitting your tax refund among various more traditional financial accounts, this filing season you also can use the money you get back from the IRS to buy Series I savings bonds.

This tax tip I wrote for Bankrate looks at how to buy savings bonds with your tax refund. You also can check out the info from the IRS.Share this tag

Related posts:

• When to expect your refund
• Are you ready to file your taxes?
• E-filing 2010 is here ... except for homebuyer credit claimants
• Picking a tax pro
• Let the IRS do your taxes for you

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