Bank Rejected My Tax Refund Deposit. What Should I Do Next?

Receiving a tax refund is often a welcome financial boost, but complications can arise when a bank rejects the deposit. Understanding the reasons behind this issue and the steps to resolve it can help taxpayers recover their funds efficiently.

Reasons a Bank May Reject a Tax Refund

Banks may reject tax refunds due to incorrect account details, mismatched information, or changes in direct deposit preferences.

Incorrect or Closed Account

One common reason for rejection is providing an incorrect or outdated bank account number or routing number on a tax return. Errors like typographical mistakes or listing a closed account can lead to the refund being returned. To prevent this, double-check your bank details when filing your return. If the IRS attempts to deposit funds into an invalid account, the bank will return the money, and the IRS will issue a replacement. If a mistake is discovered after filing, use the IRS’s “Where’s My Refund?” tool or contact the IRS directly to address the issue.

Mismatched Personal Information

Another cause of rejection is discrepancies between the personal information on the tax return and the bank account, such as mismatched names or Social Security numbers. Banks rely on this data to verify account ownership, and inconsistencies can result in rejections. For example, name changes due to marriage or divorce often lead to mismatches. Taxpayers should ensure their tax return reflects their legal name as registered with the Social Security Administration. Updating records with both the IRS and the bank can prevent future issues. Form 8822 can be used to notify the IRS of changes to personal information.

Revoked Direct Deposit Authorization

If a taxpayer revokes their direct deposit authorization after filing, the IRS will send the refund as a paper check. This can happen when account preferences are changed or the direct deposit arrangement is canceled. To update refund preferences, taxpayers can file an amended return or contact the IRS. Acting promptly is crucial, as changes must be made before the refund is processed.

How Government Agencies Handle Returned Funds

When a bank rejects a tax refund, the IRS will issue a paper check to the address listed on the tax return. This process can take several weeks. Taxpayers can track the status of their refund through the IRS’s “Where’s My Refund?” tool, which provides updates on the processing and mailing of replacement checks. To avoid delays, taxpayers should ensure their mailing address on file with the IRS is current.

Possible Fees or Charges From Financial Institutions

Rejected deposits may result in fees from financial institutions. Some banks charge a returned deposit fee, typically ranging from $10 to $35, to cover administrative costs. If an initial deposit is credited and then reversed, overdraft fees may also apply if the account balance falls below zero. These fees are charged incrementally until the account is brought back to a positive balance. To avoid such charges, taxpayers can enroll in overdraft protection programs or ensure their account details are accurate before filing.

Options for Receiving a Replacement Refund

If a tax refund is rejected, taxpayers can opt to receive a replacement via a paper check sent to their registered address. While this option may take longer, it provides an alternative for those without access to a valid bank account. Another option is using a prepaid debit card, which can receive direct deposits and be used for purchases or cash withdrawals. However, taxpayers should review the terms and fees associated with prepaid cards before choosing this method.

Steps to Update Your Deposit Details for Future Returns

To prevent future deposit rejections, taxpayers should update and verify their bank account information before filing their tax return. Double-check the account number and routing number for accuracy. Using the IRS’s e-file system can reduce errors, and keeping the account active and open during tax season is essential. Taxpayers should also notify the IRS of changes to their personal information, such as name or address updates, using forms like Form 8822. Ensuring the Social Security Administration and your bank have your current details can further minimize discrepancies. Regular communication with your bank can help address potential issues early on.

By understanding why tax refund rejections occur and taking proactive steps to update information, taxpayers can ensure smoother transactions in the future and avoid unnecessary delays or complications.