Tax software will request your bank account and routing numbers, which can seem unnecessary. You’ll soon see why giving these details has far more advantages than disadvantages.
Whether paying your taxes or expecting a refund, tax software helps you set up direct deposit and payment through your bank. Automated direct deposit and payment through your bank is more accurate, timely, and secure than traditional methods.
Key Takeaways
- Providing bank account information to tax software has more advantages than disadvantages.
- Tax software will establish direct deposit and direct pay with tax authorities and your bank using your banking information.
Benefits Include
- Indicate where tax refunds should be sent: Direct deposit is the most effective way to get your refund in less than 21 days after submitting your federal tax return, if one is owed. You’ll be guaranteed direct deposit if you give your tax software access to your bank account details.
- On-time payment of tax obligations: The quickest way to pay tax authorities on time is to use a bank account for direct pay. Tax software will use your banking information to automate direct pay, avoiding paper checks that risk tax penalties from delays.
- Establish a payment history: Improves record-keeping by creating a clear and traceable payment history of direct payments and deposits for taxpayers through bank statements.
- Electronic Filing Verification: While electronically filing your tax return, some tax authorities request bank account or routing details as a means of identity verification. This is an extra precaution to guarantee the integrity and security of electronic tax filing.
- Split refund into different accounts: IRS Form 8888 allows splitting tax refunds up to three US bank accounts, which can be checking, savings, Individual Retirement Arrangement (IRA), or a Health Savings Account (HSA).
- Security and Fraud Prevention: Utilizing bank accounts and routing numbers adds an extra layer of security compared to traditional paper-based transactions. Banks have security measures in place to protect against fraud and unauthorized access.
- Avoid errors and delays: If you’re not using tax software, you’ll manually enter banking details or write paper checks. That can lead to costly errors and delays in the mail system. Setting up tax software with your banking details creates a single point of failure that’s far more manageable.
To receive direct deposit, the bank account must be in the taxpayer's name, their spouse's name, or both if filing jointly.
Possible Disadvantages
- Mistaken bank information: While linking bank information with tax software reduces the risk of mistakes, it doesn't eliminate them. The Department of Taxation and Finance warns that taxpayers may accidentally enter a closed bank account or swap digits of the number, which delays tax refunds.
- Security Concerns: Sharing bank account and routing numbers carries the risk of unauthorized access or fraud. While tax software is known for robust security, risks can never be completely eliminated.
- Privacy Issues: Sharing financial information electronically carries a reduction in privacy. This loss of control may be sufficient for some to use paper checks instead.
- Limited control: Authorizing direct payments or deposits might result in less control over transaction timing. You must ensure your account balance is sufficient to meet your tax obligations at all times.
So Is It a Good Idea?
Sharing your bank account and routing number with your tax software has several benefits that can help you manage your tax obligations and refunds more efficiently. It enables accurate, timely, and secure direct deposits and payments, eliminating the need to wait for a paper check in the mail.
On the other hand, you’ll need to ensure you have sufficient funds in your bank account as soon as you file your tax return. Even so, providing your tax software with your banking details is likely a good idea, as the downsides are far less than the benefits.