This tax season, you'll want to set up a direct deposit and fix any errors.
Sarah Tew/CNETTax season is right around the corner, starting Monday, Jan. 24. And even if you're not planning to file until the April 18 deadline -- or after if you're filing an extension -- you should consider setting up direct deposit with the IRS. Not only can this help you get your tax refund much quicker, but it will also help you get any other money owed to you faster (for instance, child tax credit money).
Most people use direct deposit as the method of payment for receiving tax refunds, child tax credit money and stimulus checks. Some groups, such as Social Security beneficiaries, are even required by the US Treasury to use direct deposit.
Here's why and how to set up direct deposit with the IRS. For more details, here's what to know about when to file your 2021 tax return with the IRS. Also, here's why you should tell the IRS and USPS if you've moved recently.
You could get your tax refund back weeks sooner using direct deposit
When you file your taxes, you usually have the option to add a bank account so you can receive your refund through direct deposit. "The best and fastest way to get your tax refund is to have it electronically deposited for free into your financial account," the IRS says. You can have your money deposited in up to three different accounts if you'd like to split up your tax refund.
You can also expect a quicker refund if you combine direct deposit with electronic filing, rather than printing out and mailing in paper tax returns. In fact, the IRS recommends setting up direct deposit to avoid any delays with your refund. Last year, the average time it took to get tax refunds back for those who filed electronically with direct deposit was 21 days, not counting those who had issues with their tax return.
You should also be aware that the IRS is asking taxpayers to avoid filing paper returns, if possible, and instead e-file. Filing your return the old-school way could cause another processing delay, like the one the IRS experienced last year. Filing your tax return closer to the beginning of tax season rather than closer to the deadline will also set you up to get your tax return faster -- and any unpaid child tax credit money, too.
Get your money quicker with direct deposit.
Sarah Tew/CNETYou'll get your child tax credit money faster, too
On the whole, people who had direct deposit set up with the IRS received all of their child tax credit payments much sooner than those who received paper checks. That means you'll want to get your direct deposit information set up as soon as possible if you want the rest of your child tax credit money quicker. To do this, you'll need to enter your banking information when you file your 2021 taxes this year.
And if you're still waiting on the third stimulus check money to arrive, or a plus-up payment, you'll receive it faster if you've got direct deposit set up.
Fun fact: It's cheaper for the Treasury to send your refund via direct deposit, rather than by paper check
Each paper refund check issued costs US taxpayers more than $1, but it only costs a dime for each direct deposit made, according to the IRS. In 2020, 125.3 million refunds were issued, with over 23 million sent by mail, according to Bankrate.
That means in 2020, it cost taxpayers roughly $23.3 million for paper check refunds to be sent out and about $10.2 million for direct deposit.
Errors to work on fixing now
If you never updated your banking details in the IRS child tax credit portal, it's possible you didn't receive your money or it came as a paper check. To avoid this in the future, you can adjust those direct deposit details in the portal or when you file your taxes online.
Also, if you'd like to have your tax refund spread out across several accounts, now's the time to do that. When setting up direct deposit on your taxes, you can add up to three different bank accounts, which can be beneficial if you're using one as a savings account.
Direct deposit is cheaper than receiving a check.
Sarah Tew/CNETHow to set up your direct deposit bank information when you file your tax return
When filing taxes, select Direct Deposit as your refund method through your tax software, then type in your bank account and routing numbers -- you can still add your bank account information even if you're not getting a refund. You can find your account and routing number on your bank's website when you sign in, call your bank branch or locate the numbers on a check. You can also give your tax preparer this information if you don't file your own taxes.
If you're a nonfiler, that is someone who is not usually required to file taxes, but you're filing for the Recovery Rebate Credit to get a missing stimulus check, you'll need to file Form 1040 or Form 1040-SR (PDF).
The IRS says your refund should only be deposited directly into a US bank or US bank-affiliated account, and that it needs to be in your name, your spouse's name or both if it's a joint account.
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