Don't Mess With Taxes

Photo by Brett Sayles

Tax refunds are one of the main ways the Internal Revenue Service uses to encourage more of us taxpayers to go digital.

For years, the IRS has said that if you e-file your tax return and include bank information, your refund can be directly deposited in less than 21 days.  

There are, of course, a few caveats connected to this promise of a three-week refund turnaround.

First, your return must not have any iffy entries that prompt Uncle Sam's tax collector to take a closer look, and possibly send out follow-up communications.

Second, there isn't a mandated hold on your refund. That's the case with early-filed returns that include Earned Income Tax Credit and/or Additional Child Tax Credit claims. The IRS is legally prohibited from sending out refunds in these cases until Feb. 15.

Third, you have a financial account into which the IRS can electronically deposit your refund amount.

That third part is the problem for some taxpayers.

Millions of under- and unbanked: In 2021, more than 24 million households don't have or don't regularly use financial institution accounts, according to the latest annual Federal Deposit Insurance Company (FDIC) national survey of the under- and unbanked.

The unbanked, as the term indicates, are those who don't have a savings or checking account. They accounted for nearly 6 million households in the FDIC report. The underbanked, another 18.7 million households, have a checking or savings account, but tend to turn to alternative financial services.

Many of these bank-absent individuals turn to pawn shops, payday lenders, private sector check cashing operations, and the like for their money needs and transactions.

Bank expenses add up, too: Even though the substitute financial outlets tend to be predatory, charging often exorbitant fees, many prefer them to banks. There's no major commitment and few documentation requirements.

Plus, traditional financial institutions are also costly. Even though banks and other standard money handlers have your money, you end up paying in myriad ways for them to hold it.

Most banks require minimum balances. Miss it, and you'll get hit with a charge. Overdrawing your account will trigger another fee, which could be more than the amount you came up short. If you want to use an ATM unaffiliated with your bank, you'll pay for that, too.

Credit unions tend to offer more favorable account terms, but they aren't as readily available to many.

Options for unbanked: Still, there are some options if you want a bank account for, if nothing else, getting quicker access to your tax refund.

The FDIC's Get Banked program offers an online guide to opening an account at one of its insured banks.

The FDIC suggests you review this checklist before using its online search tool BankFind. You also can check out the lists of banks that offer accounts that can be opened online from:

• Bank On
• American Bankers Association
• Independent Community Bankers of America

If you prefer a credit union, the National Credit Union Administration website has its own credit union locator tool. You can search for a credit union by address or name, then pick one (or more) from the results to view more information.

The info will include the credit union's charter number. Plug that into the Credit Union Locator's companion Research a Credit Union online tool for more specifics on that branch.

If you're a military veteran, check out the Veterans Benefits Banking Program (VBBP). This partnership between the U.S. Department of Veterans Affairs (VA) Veterans Benefits Administration (VBA) and Association of Military Banks of America (AMBA) helps veterans and their families find account options at participating banks and credit unions.

And if you're all in on mobile, some financial apps and prepaid debit cards allow for direct deposit of tax refunds. They must have routing and account numbers associated with them that can be entered on a tax return. Check with the mobile app provider or financial institution to confirm which numbers to use.

Whichever account route you choose, set it up before your file. That way all you have to do is enter the account and routing information on your Form 1040 and wait for your refund to be deposited, usually much sooner than snail mailed U.S. Treasury checks.

You also might find these items of interest:

• Digital IRS is costing those who can least afford it
• RALs are still around, but be sure they're worth the cost
• IRS warns that tax refunds in 2023 might be smaller. Here are 3 reasons why

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