Bankrate's 2009 Tax Guide
Tips and tools
Triple tax-refund saving option

TAX TIP No. 12

Every year you swear you're going to save at least some of your tax refund. Every year, you end up spending every last cent.

In this tax tip:
  • Mind these important details
  • Choose up to three accounts
  • Different amounts to accounts
  • Watch out for IRA snafus
  • When refund amount is wrong
  • Watch out for account errors
  • Privacy concerns
Uncle Sam wants to help. He's letting you directly deposit your refund money into up to three accounts.

You can have a portion of the refund sent to your checking account to help you pay bills, another amount directed to savings and a third chunk of IRS cash sent straight into your individual retirement account. But if you're not careful about your account instructions, you can lose your refund altogether.

Since refund direct deposit was introduced in 1987, it's become one of the IRS's most popular innovations. Last year, more than 66 million taxpayers, or almost 43 percent of all those who filed returns, had their refunds directly deposited. That accounted for more than $180 billion that moved straight from the U.S. Treasury into individual accounts, with the average direct deposit refund coming to just over $2,700.

"That's quite a bit to play with and put into different accounts," says Jackie Perlman, CPA and a research analyst at H&R Block's Tax Institute in Kansas City, Mo.

The option for direct deposit into a single account remains on the 1040EZ, 1040A and 1040. It's also available on 1040s filed by nonresident and Puerto Rican taxpayers, as well as self-employed taxpayers who must file the 1040-SS.

But now on each of those forms, if you want to divide your refund into multiple accounts, you'll have to send along Form 8888, Direct Deposit of Refund to More Than One Account, with your individual return.

Mind these important details

It's not a difficult process or form. If you've used the single account direct deposit option before, there's nothing to worry about other than the number of accounts you can enter.

Even if this is your first year to have your refund money sent electronically to a bank account, the directions are clear, and Form 8888 includes a blank check diagram showing you exactly what to look for and enter.

But there are some things you need to pay attention to or your good deposit intentions could go astray.

First, be sure to check the box on your 1040 that indicates you are splitting up your refund. It will let the IRS know you want your money sent to multiple accounts and that agency employees need to look to your Form 8888 for details.

The check box is on each of the various 1040 forms, just above where you would enter information if you were sending the money to just one account.

And about that 1040 section for a single direct deposit: Leave it blank. If you complete the account information on your main return, don't be surprised if the IRS then sends all your refund money to that one account.

Instead of using your 1040 form, you'll enter all your multiple account information on Form 8888.

Choose 1, 2 or 3 accounts

The form has room for three accounts, but that doesn't mean you have to choose that many.

If you want your IRS cash deposited in only two accounts, that's fine. In fact, the IRS says that 96 percent of multiple account deposit requests last year designated two accounts. All you have to do in this case is simply enter account information for the pair on Form 8888.


And if you're happy with your refund going to one, just enter that single account info in the appropriate section on your 1040.

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