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A paid tax preparer will usually accept responsibility for any errors made while preparing your tax return, including incorrect entry of the financial-institution information for direct deposit. If you provide the correct information, but the preparer enters it incorrectly, you may receive a paper refund check, and your refund may be delayed. The worst-case scenario is that the financial institution deposits the refund into the wrong account, requiring that the institution find the money and restore it to the correct owner.
Failing the Validation
The IRS runs each routing and transit number, as well as the account number listed on the income tax form, through its own validation system, which is similar to those used for credit card numbers, using an algorithm of numbers to determine if the direct-deposit information is definitely incorrect. If the account number entered on the tax return by the preparer fails this validation, the IRS will issue you a paper check for your refund amount.
Incorrect Number -- Institution Rejected
If the routing and transit number matches the number for a financial institution, but the account number is not recognized by that institution, the institution will reject the direct deposit of your income tax refund. When this happens, the IRS will issue you a paper check for your refund amount. The financial institution may also reject the direct deposit if it recognizes that the name on the income tax refund does not match the name of the owner of the account listed by the paid preparer.
Incorrect Number -- Institution Accepted
If the financial institution and account information on the income tax return is incorrect, but matches an actual account number for another individual, and the institution does not verify the name or names of the account owner, the institution could accept the refund as a direct deposit, placing the money in the incorrect account. If this happens, it is not the IRS's responsibility to withdraw the money and deposit it in the correct account. You must work with your financial institution to correct this error, once you know the money was deposited into the wrong person's account. Your paid preparer should assist you with getting this straightened out as a gesture of goodwill, particularly if it is his error.
Your preparer can file Form 8888, Allocation of Refund, to split your refund over up to three separate accounts. This is useful if you are depositing some of your refund money into an IRA, as well as into a savings account and regular checking account. If there is an error, or your return processing is delayed, the entire refund will be deposited into the first account listed. Be certain that the first account listed is the account where you would want the money to go to in case this happens.
Check With Your Financial Institution
Before having a paid preparer list your financial institution information on your tax return for direct deposit, check with your institution to be certain that the direct deposit will be accepted, and that the information is correct. Also be certain that you are specifying a joint checking account with both spouses' names on the account if you are receiving a refund from a joint income tax return. An individual account designated to receive the deposit is not acceptable, and the IRS will instead issue you a paper check for the refund.