IRS to allow split deposits on its refunds

June 4, 2006, 7:50PM
IRS to allow split deposits on its refunds

By TAMI LUHBY
Newsday

Hoping Americans will start saving part of their tax refunds, the Internal Revenue Service announced last week it will allow taxpayers to have the funds deposited in up to three accounts starting next year.

The split refunds will be available only to those opting for direct deposit. Until now, taxpayers could only have refunds deposited into one account. "Split refunds should encourage saving, and we hope it will dampen demand for refund anticipation loans," said IRS Commissioner Mark Everson, noting that more than half of those filers getting refunds use direct deposit.

Financial experts say split refunds will encourage Americans to save part of their check for retirement or other long-term needs. Last year, the average refund was $2,171.

The IRS will create Form 8888 to allow taxpayers to choose up to three accounts — such as a checking, savings and retirement account — for their refund. Those who want a refund deposited into just one account can continue to mark the proper line on Form 1040 and forgo the new form.
(snip/)

http://www.chron.com/disp/story.mpl/business/3924394.html

has the capability of switching funds from a checking a/c to a savings a/c.

I realize there isnt MUCH cost to something like that, but there IS a cost.

I don't fault anyone for promoting saving. That's good advice. But THIS plan sounds to me like a back door support for Shrub's idea to screw-up SS.

And how much is the government paying them per transaction?

If you got a tax refund, you overpaid your taxes.

A better way to invest is to adjust your paycheck deductions so that you come out as close to zero refund a possible by the end of the year.

Then you can invest your own money any way you please.

My tax refund is gone by the time I get my w-2's.
Part of the "strong economy" I guess.

The point is that overpaying taxes and getting a tax refund is the worst use of your money imaginable.

I sympathize with your money troubles, independent of the tax refund question.

I do understand how for some people the prospect of a tax refund beats worrying about the chance that they will owe taxes, and also that for some it's the only way to force a little savings.

However, for people with a regular, predictable income stream it's easy enough to estimate tax liability and reduce withholding to the point where you will be close to even with payments at the end of the year. When I was self-employed I prepaid 91-93% of my estimated liability and always owed money in April. I planned for it.

You are right, there's no sense loaning the government the money. After all, look what they do with it. ;)

...although God help you if you can't make that balloon payment at the end of the year. :)

Although I would not recommend playing that particular game of chicken.

There's no criminal penalty unless you underpay by more than $10,000, and there is no penalty if you pay off the tax underage when you file your return.

Theoretically, you could underpay taxes and escrow the money into an interest yielding account, then pay your tax deficit from there every year, keeping the interest earned.

Mind you I am not recommending this, it is simply a hypothetical. What I do recommend is adjusting your payroll deductions to net out as close as possible to zero.

:hi:

the next year. its a no win situation

Gee isn't that nice.

The split refunds will be available only to those opting for direct deposit. Until now, taxpayers could only have refunds deposited into one account. "Split refunds should encourage saving, and we hope it will dampen demand for refund anticipation loans," said IRS Commissioner Mark Everson, noting that more than half of those filers getting refunds use direct deposit.

Those footsteps you hear are H&R Block walking out on the Republican Party. The big tax preparers make a killing on those loans... I'm sure they don't appreciate this gesture.