Tax refunds will no longer be delivered by paper check under Executive Order 14247, “Modernizing Payments To and From America’s Bank Account,” except in very limited—and as yet unspecified—circumstances. Tax filers expecting refunds this year who do not provide direct deposit information could face long delays and additional administrative barriers.
Tax refunds are a critical source of income for low-income households. As paper check refunds are phased out, the IRS should move quickly to clarify who remains eligible for a paper check this year, begin working with those taxpayers to put electronic alternatives in place by the 2027 filing season, and remain flexible in responding to emergencies.
For 5 million households, paper checks are the only way to receive tax refunds
Last year, the IRS issued about 10 million payments—roughly 9 percent of all refunds—via paper check. This is about half the amount issued in 2019. The IRS has cited cost-effectiveness, security, and speed as the primary reasons for the change. Paper checks are four times as expensive to deliver and 16 times more likely to be reported lost, stolen, returned undeliverable, or hit other administrative obstacles.
The federal government aims to transition paper check recipients to modern electronic payment options, including direct deposit, debit or credit cards, digital wallets, and real-time payment systems.
Some filers who currently receive paper checks have bank accounts that can accept direct deposits and would need to provide that information when filing this year to avoid delays.
But more than 5 million households—about 4 percent of all US households and 22 percent of low-income households—were “unbanked,” or lacked access to banking services, in 2023. Of these, roughly two-thirds were cash-only, meaning they did not use prepaid debit cards or other non-bank technologies.
Households comprised of people who are Black or Hispanic, people with disabilities, and single parents, as well as those with lower educational attainment, are also significantly more likely to be unbanked than the overall population. In 15 states, the unbanked population makes up at least 5 percent of the state’s population (see map).
The cash-only unbanked population is at least 5 percent of the state population in Louisiana, Georgia, and Mississippi. Indeed, cash-only unbanked households make up a growing share of all unbanked households. They are more likely to include adults age 55 or older or Hispanic individuals, and are less likely to include Black individuals.
Households have cited privacy concerns, religious objections, and distrust of banks as reasons for not wanting bank accounts. For Hispanic families in particular, language barriers, cultural factors, and immigration status can limit access to financial services.
The IRS can make sure refunds get to vulnerable households in a timely manner
Right now, tax filers who are owed a tax refund but do not provide direct deposit information on their tax return will face a six-week delay in most cases before they receive their refunds. Only tax filers who respond to IRS follow-up letters with direct deposit information or a successful request for an exception from direct deposit will get timely refunds. This adds paperwork and imposes a hardship on those relying on refunds to pay rent, holiday bills, tuition, car payments, or medical bills. Obtaining an approved exception could be a lengthy process, absent clarity from the IRS on who will be eligible.
The National Taxpayer Advocate has suggested it might be necessary to continue paper checks for:
- Unbanked or underbanked individuals
- Americans living abroad
- Religious groups avoiding electronic systems
- Victims of domestic violence
- Individuals with disabilities
Other groups potentially impacted by the phaseout of paper check refunds include incarcerated taxpayers, ITIN filers, elderly tax filers, those in rural or tribal areas, or those with limited broadband access. Many of these taxpayers already experience barriers to tax filing—misunderstanding eligibility requirements, being unaware of benefits, facing filing costs and difficulties gathering tax documents—that will be compounded by the end of paper checks.
Many Volunteer Income Tax Assistance/Tax Counseling for the Elderly (VITA/TCE) sites are well-positioned to connect tax filers to trustworthy banking resources. However, banking resources are not available at all VITA sites, and not all sites will be able to add this service in time for this year’s tax season. Other tax filers who hire tax preparers may resort to riskier options like refund advance products in order to access their refunds more quickly, often paying for the service.
Over the long-term, the IRS can use its VITA grant program to scale financial inclusion resources at VITA sites and use trusted messengers to get culturally specific information about direct deposit to tax filers who rely on paper checks.
Tax season opened earlier this week. Taxpayers would benefit from clearer IRS guidance on specific alternative payment methods and eligible exception categories. The IRS should start planning now for the 2027 filing season so that all tax filers know exactly how refunds will be delivered.
Improvements in electronic tax administration are welcome, but care is needed to ensure some taxpayers aren’t collateral damage, especially in a transition year.
