In an effort to avoid pandemic-related disruptions, the Internal Revenue Service (IRS) is encouraging taxpayers to e-file their tax returns and opt into direct deposit to ensure accuracy and quick turnaround times for refunds. Filing season opened on Feb. 12, 2021, and individuals have until Apr. 15, 2021, to file their 2020 returns, as well as pay any owed tax.

Benefits of Direct Deposit

Individuals who opt into direct deposit not only benefit from quicker tax refunds, but also safer ones. Since refunds are deposited electronically, the risk of having a paper check stolen or lost is virtually eliminated. Given the amount of COVID-19-related identity-theft scams circulating this past year, it is better to air on the side of caution when it comes to submitting any sensitive information, such as a tax return. Individuals who file paper returns instead of e-filing may also opt into direct deposit, but it will take more time to process the return.

How to Set Up Direct Deposit for Tax Refunds

When selecting a refund method while filing a return, individuals can simply follow the instructions to choose direct deposit. Users will then be directed to securely enter their bank account and routing number. Further, taxpayers can even split their refund into multiple financial accounts, including savings, checking, education, health and certain retirement accounts. Individuals also have the option to purchase up to $5,000 in Series I U.S. Savings Bonds using their refund.

While taxpayers can split their refund into several accounts, the IRS warns against depositing refund proceeds into accounts owned by others. Individuals are recommended to only deposit their refunds into U.S. bank accounts belonging to themselves, their spouse or both.

No Bank Account?

Individuals who do not have a bank account may visit the Federal Deposit Insurance Corporation (FDIC)’s website for assistance in finding a bank that can create an account online. Veterans have access to the Veterans Benefits Banking Program, which allows them to access financial services at participating banks.

New Tax Credits and Deductions to Note This Tax Season

To accommodate the difficulties of the ongoing COVID-19 pandemic, several notable tax credits and opportunities were created. Notably:

  • Individuals who were eligible for stimulus payments are recommended to review the recovery rebate credit’s guidelines. Taxpayers who didn’t receive their payment or only received a portion of it may claim the recovery rebate credit when filing their 2020 tax return.
  • Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, individuals who do not itemize deductions can take a charitable deduction of up to $300 for cash contributions made to qualifying organizations in 2020.
  • Individuals with early earned income tax credits and additional child tax credits will see updates to the IRS’s “Where’s My Refund?” page by Feb. 22, 2021.

If you are in need of assistance preparing your tax return or are not sure if you qualify for any of the new COVID-19-related tax credits, contact Doeren Mayhew’s dedicated CPAs and tax advisors today.