How can we assist you? Book an appointment with us today!

Make an appointment
Tangible Accounting, PLLC

Navigating the IRS Transition to Electronic Tax Refunds: Impacts and Strategies

In a transformative step aimed at modernizing tax operations, the Internal Revenue Service (IRS), in concert with the U.S. Department of Treasury, has announced plans to phase out paper tax refund checks by September 30, 2025. This shift, driven by Executive Order 14247, is part of broader efforts to enhance system efficiency and security. However, this transition presents unique challenges, particularly for taxpayers without traditional bank accounts. Here, we explore the implications of this policy change and consider options available for the unbanked population.

Image 2

Reasons for Electronic Refund Transition

The move to electronic refunds offers numerous advantages. Electronic payments drastically reduce the risk of being lost or stolen compared to paper checks, ensuring more secure receipts for taxpayers. Additionally, the IRS can process these electronic refunds substantially faster—often within 21 days for electronic filings compared to weeks for paper checks—provided there are no complications with the return.

The economic benefits are also noteworthy. By eliminating the costs related to printing and mailing checks, the Treasury can allocate its resources more efficiently. With nearly 93% of federal tax refunds in 2025 already delivered via direct deposit, the transition to a fully electronic process aligns with the established trend of increasing digital payment adoption.

Challenges for the Unbanked

Despite these benefits, the 7% of taxpayers reliant on paper checks face significant hurdles. As this group often lacks access to traditional banking services, they must quickly consider alternatives like prepaid cards and digital wallets.

The American Bar Association (ABA) has expressed concerns regarding the timeline for this transition, warning of potential difficulties for un- and underbanked individuals. There's a call for enhanced access to banking services and public education about the potential pitfalls of prepaid cards, which may come with high fees and less consumer protection.

Furthermore, the Tax Law Center has cautioned that prepaid cards might not be suitable for the significant lump sums typical of tax refunds, as opposed to monthly benefits often handled through such means. The need for a thoughtful roll-out strategy is critical to ensure the costs do not outweigh the benefits.

Solutions and Alternatives

To assist those without banking access, several initiatives can mitigate transition challenges:

  1. Prepaid Debit Cards: These provide a quick solution without the need for a bank account, though users should be cautious about fees and card renewal processes for sequential tax refunds.

  2. Digital Wallets: Platforms like PayPal and various mobile banking apps can facilitate electronic payments with straightforward setups.

  3. BankOn Initiative: This initiative aims to provide affordable banking options, encouraging taxpayers to open accounts with certified BankOn initiative features, which minimize fees and offer no minimum balance stipulations.

  4. FDIC’s GetBanked Resources: This offers guidance on opening basic bank accounts. Several institutions propose accounts with minimal fees, ideal for first-time bank users.

  5. International Considerations: For taxpayers outside the U.S., current policies limit direct deposits into foreign accounts. Though advocacy exists for policy changes, using existing U.S. accounts is currently recommended.

Image 1

The IRS’s initiative toward paperless refunds promises modernization but also poses logistical hurdles for unbanked populations. Its success hinges on comprehensive public awareness and access to alternative financial services. Exploring and advancing feasible solutions will help taxpayers mitigate transition issues and leverage the advantages of electronic payments. This shift will not disrupt taxpayers already receiving electronic refunds. For further inquiries, feel free to contact our office.

Share this article...
Facebook
Twitter LinkedIn Pinterest Pocket Reddit Email

Want tax & accounting tips and insights?

Sign up for our newsletter.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

Affiliations