While the holiday season is upon us, tax season is just around the corner. AARP is drawing attention to a new program that they hope will encourage people to save and invest their tax refunds. For the first time ever, the Internal Revenue Service (IRS) will allow people to split their tax refunds and send direct deposits to as many as three different accounts at three different financial institutions. This could include bank checking and savings accounts, mutual funds and retirement, health and education accounts.
“In the past, many taxpayers have sent their refund directly into their checking account, where they are more likely to spend the money,” said Jean Setzfand, Director of Financial Security for AARP. “The new split refund option will allow people to deposit their refund into multiple accounts, which could help increase savings and investment for long-term retirement planning.”
If you are considering a split refund, AARP recommends a few simple guidelines to make the process easier:
- Decide ahead of time how much you want to deposit to each account.
- Check with your financial institution to make sure they accept direct deposits for the accounts you plan on designating.
- Have your account and routing numbers on hand. If you don’t have them, you can contact your bank, mutual fund or other financial institution to confirm the numbers.
- Get the new IRS form 8888, fill it out and attach it to your individual filing forms (1040, 1040A/EZ, 1040NR or any of the 1040 series.)
The IRS expects millions of taxpayers to take advantage of the new split refund, which was authorized by the Pension Protection Act of 2006. Last year, more than 34 million people had their tax return deposited directly to their bank accounts.
Some economists believe that split refunds will greatly help Americans increase personal savings and resist spending all of their refunds, especially in the case of middle and lower-income households—noting that when companies began to automatically enroll workers in 401 (k) plans, it led to substantial increases in employee participation and savings.
“Tax refunds are sometimes the largest lump sums of money that people ever receive, so split refunds represent an easy opportunity for people to put aside some money for a rainy day,” said Bonnie Speedy, AARP Tax-Aide’s National Program Director. “The free Tax-Aide service is prepared to provide taxpayers with the assistance they need to take advantage of this new option and split their refunds based on their savings needs and preferences.”
Taxpayers who would like assistance filing their taxes may tap into the free Foundation Tax-Aide program. AARP Tax-Aide volunteers provide tax assistance and preparation services at no cost to over two million low- and moderate-income taxpayers, particularly those ages 60 and older.
Trained and IRS certified volunteers help taxpayers at 7,000 Tax-Aide sites across the country to file accurate returns, avoid sometimes expensive tax return preparation costs, and help taxpayers receive all of the benefits, credits, and deductions to which they are entitled. Most AARP Tax-Aide sites e-file returns, also at no cost, which helps taxpayers get refunds quickly and without needing very costly rapid refund loans from paid preparers.
For more information on the new split refund option, visit: