Feature Articles
Splitting your refund among multiple accounts
Reviewed and adapted with special permission from the IRS by: Andrew Zumwalt, Extension Associate, Personal Financial Planning, University of Missouri-Extension
Taxpayers have more choices and flexibility for the direct deposit of their 2007 federal income tax refunds. They can split their refunds among up to three accounts held by as many as three different U.S. financial institutions, such as banks, mutual funds, brokerage firms or credit unions.
This split-refund option is available to taxpayers who choose direct deposit regardless of whether they filed the original returns on paper or in electronic format using Form 1040, 1040A, 1040EZ, 1040-PR, 1040NR, 1040NR-EZ or 1040-SS. However, taxpayers filing Form 8379, Injured Spouse Allocation, cannot opt to split their refund.
To split their direct-deposit refunds among two or three different accounts or financial institutions, taxpayers should complete new Form 8888, Direct Deposit of Refund to More Than One Account. Taxpayers can continue, though, to use the direct deposit line on Form 1040 to electronically send their refunds to one account.
Opportunity for Asset Building
Split refunds offer taxpayers the opportunity to build assets by sending part of their refund to one account for immediate needs and another part to a savings or investment account for future needs. The IRS repeatedly has encouraged taxpayers to adjust their payroll withholding to ensure they pay only the taxes required. However, some people appear to view payroll withholding as a way to save money.
A recent study, “Refunds to Assets: Splitting Refunds
and Building Assets,” conducted by Harvard Business
School and other interested parties, found that one in
three lower-income taxpayers who were offered a choice
opted to direct a portion of their refund into savings
accounts. For many, it was their first savings
experience with a financial institution.
For more information, contact your local county
Extension office or call the IRS at 1-800-829-1040.
Links:
Form 8888: Direct Deposit of Refund to More Than One Account
Frequently asked questions about refund splitting
Source: IRS FACT SHEET: FS-2007-05
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Last update: Monday, January 07, 2008
