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Taxpayers Have More Direct Deposit Options for their 2006 Refunds
Starting in 2007, taxpayers have more choices and flexibility for the direct deposit of their 2006 federal income tax refunds. For the first time, they can split their refunds among up to three accounts held by as many as three different U.S. financial institutions, such as banks, mutual funds, brokerage firms or credit unions.
This new, split-refund option is available to taxpayers who choose direct deposit regardless of whether they filed the original returns on paper or in electronic format using Form 1040, 1040A, 1040EZ, 1040- PR, 1040NR, 1040NR-EZ or 1040-SS. However, taxpayers filing Form 1040-EZ-T, Request for Refund of Federal Telephone Excise Tax, or Form 8379, Injured Spouse Allocation, cannot opt to split their refund.
To split their direct-deposit refunds among two or three different accounts or financial institutions, taxpayers should complete the new Form 8888, Direct Deposit of Refund to More Than One Account. Taxpayers can continue, though, to use the direct deposit line on Form 1040 to electronically send their refunds to one account. The split-dollar refund option gives taxpayers more choices for managing their refund, teamed with the speed and safety of direct deposit.
In 2006, about 56.7 million taxpayers received direct deposit refunds out of a total of 134 million returns. Of the returns with direct deposits, a total of $148.2 billion was refunded, with the average refund equaling $2,612. Opportunity for Asset Building Split refunds offer taxpayers the opportunity to build assets by sending part of their refund to one account for immediate needs and another part to a savings or investment account for future needs.
The IRS repeatedly has encouraged taxpayers to adjust their payroll withholding to ensure they pay only the taxes required. However, some people appear to view payroll withholding as a way to save money. A recent study, "Refunds to Assets: Splitting Refunds and Building Assets," conducted by Harvard Business School and other interested parties, found that one in three lower-income taxpayers who were offered a choice opted to direct a portion of their refund into savings accounts. For many, it was their first savings experience with a financial institution.
Regardless of taxpayers' filing methods - electronic or paper - direct deposit gives faster access to their funds than paper checks. The speed varies depending on whether the tax return is filed electronically or on paper. For e-filed tax returns, taxpayers who request that their refunds be: * Deposited directly into their accounts will receive their checks within two weeks. * Sent in the form of a paper check will receive their checks within three weeks.
For paper return filers, taxpayers who request that their refunds be:* Deposited directly into their accounts will receive their funds within four to six weeks. *Sent in the form of a paper check will receive their funds within up to six weeks.
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