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Should I Use Direct Deposit for my Tax Refunds

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Direct Deposit. We use it to get our paychecks, Social Security checks, account refunds, and other payments we receive.

But, should we get tax refunds deposited directly?

Before you answer, consider what happens with that account information.

It's listed on your Federal return right on page 2 of the 1040. It'll get entered into the IRS payment system and they'll post your refund to that account in one to three weeks.

But, they'll also keep that information on the copy of the return.

If you later give permission to anyone to obtain a copy of that return from IRS, they get the account information with it.

Also, if IRS Collection personnel later decide you owe unpaid tax, they can use that account information for a levy. That means they issue an order to the bank or brokerage to send your money to IRS.

IRS never makes a mistake, do they?

State income tax has similar arrangements.

So, do you trust IRS with your account information? Do you trust that all IRS personnel have your privacy and best interests in mind?

By now you've answered the question.

When clients ask me what to do, I suggest they do not use direct deposit for tax refunds. If they insist, I recommend they use an account with few transactions and small balances. If they owe, I suggest they pay by money order.

Don't give anyone your personal information unless it's unavoidable. There is no privacy in the age of identity theft unless it's actively defended.

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