It wasn’t that many years ago when at this time of year credit unions would be on the lookout for counterfeit tax refund checks. Fortunately, several security features were added to US treasury checks in 2014 and add to that the 80% of refunds that are now direct deposited into financial institution accounts, and it is no surprise that tax scammers have moved on from counterfeit checks. This year the IRS is warning taxpayers of a scam where hackers steal people’s data from tax professionals and use the information to file fraudulent returns.
Using the stolen bank account information, the cybercriminals instruct the IRS to deposit the refund into the victims’ own accounts. They then contact people pretending to be from a collection agency or the IRS claiming the refund was deposited in error and demanding the money be returned. They threaten arrest, suspension of SSNs, and/or high penalties.
The IRS is asking taxpayers who receive unexpected tax refunds via direct deposit to contact the ACH department of the credit union where the direct deposit was received and have the credit union return the refund to the IRS. The member must also call the IRS at 800-829-1040 to explain why the direct deposit is being returned.
If your member notices that the tax refund amount is different than what they were expecting it doesn’t always indicate fraud. The IRS may have changed the amount for a number of reasons, ie: an error or back taxes. The IRS will mail an explanation to the member’s address.
Also remember that in an effort to combat fraud and identity theft, since 2015 the IRS has limited the number of refunds electronically deposited into a single financial account or pre-paid debit card to three. The fourth and subsequent refunds automatically will convert to a paper refund check and be mailed to the taxpayer.
The credit union should also note that direct deposits must only be made to accounts bearing the taxpayer’s name. Tax preparer fees cannot be paid to the preparer by splitting the refund with the preparer’s account or by preparers opening a joint bank account with taxpayers.
The following are a few IRS FAQs related to depositing tax refunds:
I requested a direct deposit refund. Why are you mailing it to me as a paper check?
There are three possible reasons. They are as follows:
- We can only deposit refunds electronically into accounts in your own name, your spouse’s name or in a joint account.
- A financial institution may reject a direct deposit.
- We can’t deposit more than three electronic refunds into a single financial account.
Can I direct IRS to deposit all or part of my refund to any of my accounts with any financial institution?
IRS will direct deposit refunds to any of your checking or savings accounts with any U.S. financial institution that accepts electronic deposits. However, you should verify that your financial institution accepts direct deposits for the type of account you want to direct your deposit to and verify the account and routing numbers.
Reminder:Your refund should only be deposited directly into accounts that are in your own name, your spouse’s name or both if it’s a joint account.
If I am filing a joint return with my spouse, must our refund be deposited to a jointly-held account?
You can ask IRS to direct deposit a refund on a joint return into your account, your spouse’s account, or a joint account. However, state and financial institution rules can vary and you should first verify your financial institution will accept a joint refund into an individual account.
What types of accounts are eligible to receive my refund via direct deposit?
You can direct your refund to any of your checking or savings accounts with a U.S. financial institution as long as your financial institution accepts direct deposits for that type of account and you provide valid routing and account numbers. Examples of savings accounts include: passbook savings, individual development accounts, individual retirement arrangements, health savings accounts, Archer MSAs, and Coverdell education savings accounts.
However, some financial institutions will accept direct deposits for some types of accounts, but not others. Contact your financial institution to ensure they will accept your direct deposit and verify your account and routing number.
IRS also encourages taxpayers and their tax preparers to ensure account and routing numbers are accurately entered on returns so your funds can be deposited as intended and remember that your refund should only be deposited directly into accounts that are in your own name, your spouse’s name or both if it’s a joint account.
Can I direct part or all of my refund to my prior year individual retirement account?
IRS will deposit your refund to any of your checking or savings accounts with U.S. financial institutions per the account and routing numbers you provide, but you should ensure your financial institution will accept direct deposits to prior year IRA accounts.
As with all IRA deposits, the account owner is responsible for informing their IRA trustee of the year for which the deposit is intended and for ensuring their contributions do not exceed their annual contribution limitations. IRS direct deposits of federal tax refunds will not indicate a contribution year for IRA accounts.
If you fail to notify your IRA trustee of the intended year for the deposit, your trustee can assume the deposit is for a prior year.
IRS is not responsible for the timeliness or contribution amounts related to an IRA direct deposit. Since an error on your return or an offset to your refund could change the amount of refund available for deposit you must verify the deposit was actually made to the account by the due date of the return (without regard to extensions). If the deposit is not made into your account by the due date of the return (without regard to extensions), the deposit is not a contribution for that year. You must file an amended return and reduce any IRA deduction and any retirement savings contributions credit you claimed.
Can I direct part of my refund to pay a loan?
You can direct your refund to either a checking or savings account; you cannot opt for a direct deposit into a loan account.
For related FAQs see the IRS’Frequently Asked Questions about Splitting Federal Income Tax Refunds
