A split refund is an option the IRS has given taxpayers as an alternative to a lump-sum refund. Taxpayers have more flexibility in terms of how they receive their refunds. The split refund program offers a convenient way for taxpayers to manage their money and set some aside in an account separate from their daily living expenses.
Lower income families, who may not be able to save money any other way, can especially benefit from this program by directing their money into a savings account. Since most taxpayers do not choose to overpay the government throughout the year creating a large tax refund, the lower income families are often the ones receiving the largest refunds due to the earned income credit and child tax credit.
Taxpayers can split their refunds in up to three separate checking or savings accounts, with up to three different financial institutions. By using IRS Form 8888 Direct Deposit of Refund to More Than One Account, funds can be deposited directly into these various accounts.
Married taxpayers who are filing joint returns and expecting a refund, may split their deposit into accounts held either jointly or individually. As an example, the IRS will deposit part of a refund into the individual retirement account of one spouse, and the remainder into a joint checking or savings account. The options available to taxpayers are numerous and make it very easy to manage the funds.
Form 8888 need only be filed if the taxpayer chooses to split the refund into multiple accounts. The option still remains to receive a check or direct deposit into one account. A taxpayer choosing the split refund option must receive the funds via direct deposit. The paper check option is only available if the taxpayer receives the refund in one lump sum.
Taxpayers must provide the routing numbers and account numbers in order to ensure that the funds reach their intended destinations. If incorrect numbers are entered on the form, and the funds are returned to the IRS by the financial institution, the IRS will reissue the portion of the refund that was returned, in the form of a paper check. If the funds are incorrectly placed into another taxpayer’s account as a result of incorrect numbers provided by the filing taxpayer, that taxpayer must then contact the financial institution to make the correction.
The split refund option is a great way to direct money into savings or an IRA to assist taxpayers in saving their money. For more information, follow this link to the IRS website.