In these days of electronic banking, it’s interesting to note that many taxpayers still request to have their tax refund sent via the mail in the form of a check from Uncle Sam. Not convinced it’s worth the switch from paper tax refund checks to direct deposit? Here are three good reasons for it, one of which is getting your refund faster (i.e., so you can pay down debt faster during the credit repair process). You be the judge.
You don’t have to deal with a paper check
First, you have to wait for it to arrive in the mail. If and when it doesn’t, you have to worry if it’s been lost or stolen, or that if it’s been returned to the IRS as undeliverable, which happens to thousands of paper tax refund checks every year. Then, once you do receive it, the wait isn’t over – you still have to get it deposited into your bank before you have access to your funds.
You get your refund faster
If you opt to receive a paper tax refund check through the mail, you are adding at least 2 weeks to the process. If you opt for direct deposit, though – in combination with e-file – you can get your refund in as little as 10 days.
You can split your tax refund among multiple bank accounts
The sooner you can split your tax refund into money you save and money you spend, the better your chances of following through. Sure, you can take a paper check to the bank and have part of it deposited into your savings account and part of it into checking. But with that much cash in hand, the temptation is there to split it differently than you planned.
Direct deposit lets you make that decision before your refund starts burning a hole in your pocket.
The IRS can divide your refund among up to three different banking accounts, including checking, savings, and even your IRA.
How to Request Direct Deposit
If you’re filing a paper return, use Form 8888, Allocation of Refund.
If you’re filing electronically, your software should walk you through it.
Note, if you’re e-filing, beware of offers to direct deposit your refund onto a prepaid card. This will come with fees. If you have one or more bank accounts, direct deposit the money there. If you don’t have a bank account, go with the paper tax refund check instead. If you can’t wait that long, then consider the prepaid card option, but do the math first so you know what it’s going to cost you.
Wondering How Best to Use It?
Yes, there is a time to splurge, but tax season is not one of them. If you’re getting a refund, you need to be more conscientious than ever about what you do with such a sizable amount of money. Here’s why.
1) Your tax refund is not “extra” money
It’s money you earned, so treat it that way. Yes, splurging is fun, but remember – the tax refund you’re blowing on things you don’t need is not a windfall that came out of nowhere. It’s part of your income that you should be budgeting accordingly. That means dividing it up among multiple categories in your budget, just as you would your regular paycheck – some toward living expenses, some toward savings, and some toward fun.
2) It could be the best opportunity you have to save
If you’re not the best at setting aside savings on a monthly basis, your tax refund is a great way to play catch-up. Don’t have savings? What a perfect time to open an account. There’s nothing like starting out with a nice chunk of money like that, earning interest and inspiring you to build upon it throughout the year.
3) It could be the best opportunity you have to pay off debt
Chipping away at it every month can work, but the longer the debt sticks around, the more you pay in interest rates. Plus, it’s not always easy to stick to an aggressive debt repayment plan throughout the year. If you’re only making minimum payments on credit card debt, for example, it should be a tough sell convincing yourself to do anything else but pay it off (or down) with your tax refund.
4) This is the time to check boring, low-profile to-do’s off your list
Does the car need maintenance? Do you need to get to the dentist? Does the house need reshingling? There’s nothing fun or exciting about expenses like these, but the longer you wait, the more costly it usually is in the long run. Plus, this is a great way of relieving yourself of any worry or guilt you have about not getting these absolute essentials taken care of.
So where does splurging come into play? Certainly, it’s fine to put a small percentage of your refund toward something fun, just as you should be doing with every one of your paychecks. Stop depriving yourself on a regular basis and you’ll find it much easier to be responsible when tax season rolls around.