4 options for your tax refund
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 as soon as you cash the check.
Uncle Sam wants to help you hang on to your refund longer. He'll gladly directly deposit your refund into up to four accounts so you won't be so tempted to spend it. Among the possibilities are a standard checking or savings account, as well as an individual retirement account. You even can use up to $5,000 in tax refund money to purchase savings bonds.
The option to send your tax refund directly to several accounts was prompted by the increasing popularity of direct deposit.
Since direct deposit of tax refunds was introduced in 1987, it's become one of the IRS' most popular innovations.
Direct deposit of federal tax refunds in 2014
- 84 million returns.
- $245.1 billion in refunds.
- $2,918 average direct deposit refund amount.
You still can choose to have your entire refund sent to just one account. That option 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 if you want to divide your refund into multiple accounts or buy savings bonds, you'll have to send along Form 8888, Allocation of Refund, 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 Form 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. 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 Form 1040.
Married couples can ask the IRS to directly deposit a refund on a joint return into individual accounts held by either partner or one held in both names. However, do verify that your financial institution will accept a joint refund sent to an individual account.