Paper Check Phase-Out: The New IRS Mandate for Prepaid Cards or Direct Deposit

The End of Paper Refunds Has Arrived

The IRS is officially moving away from physical refund checks. For decades, taxpayers could request their refund by check in the mail. But beginning with the 2025 tax year (filed in 2026), the IRS is enforcing the final stage of the paper check phase-out, replacing them with:

Direct Deposit, OR
Treasury-issued Prepaid Debit Card

The government’s stated goal is to eliminate all paper refund checks for individual returns.

This shift is part of a modernization initiative to speed up refund delivery, reduce fraud, and eliminate the massive cost of printing and mailing checks.

Why the IRS Eliminated Paper Checks

There are three main reasons for the phase-out:

1. Fraud & Identity Theft

Paper checks can be stolen, forged, intercepted, or fraudulently redirected.

2. Cost

Paper checks cost more than triple the expense of digital deposits, once printing, processing, and postage are accounted for.

3. Processing Time

Paper check refunds are the slowest form of refund — often adding 3–6 additional weeks to processing compared to electronic payments.

What Your Refund Options Will Be

Starting in 2026, taxpayers must choose:

Option 1: Direct Deposit

Deposit directly into:

checking account
savings account
credit union account

This is the fastest possible refund option, often hitting the account 1–3 days after TC 846 posts.

Option 2: Treasury Prepaid Debit Card

For taxpayers who:

do not have a checking or savings account
do not want to provide banking details
have had banking rejections in the past

The IRS will issue a Treasury-linked prepaid debit card for refunds.

Card features include:

FDIC insured
PIN protected
reloadable
no credit check
accessible through ATMs and point-of-sale

This replaces the traditional paper check.

What Happens If You Don’t Make a Choice

If you do not choose direct deposit when filing:

you automatically receive your refund via Treasury-issued prepaid card
not a check
not a mailed warrant

There will no longer be a “mail me a paper check” option.

The New Filing Requirement: Bank or Identity Verification

For direct deposit, the IRS is implementing additional verification to prevent fraud:

routing number verification
account ownership matching
name identity tie-back to SSN
risk-flagging of mismatched accounts

This is why entering someone else’s bank account — even a spouse’s — will increasingly trigger refund rejections.

Big Question: What About the Unbanked?

Traditionally, 6–7 million Americans do not maintain a bank account.

This group is the reason prepaid refunds exist. The Treasury card system acts as:

a substitute for bank access
a safe, electronically traceable payment method
an anti-theft measure
a fraud-prevention tool

What This Means for Taxpayers

If you always used direct deposit

Your experience will be faster, simpler, and less risky.

If you depended on paper checks

Prepare now:

obtain a checking or savings account
or prepare to receive your refund as a prepaid card
or use a reputable prepaid option like Green Dot or Netspend that you personally control