Last year, the IRS processed over 128 million refunds at an average amount of $2,775 each. The majority of those were sent through direct deposit. The IRS encourages taxpayers to use this method because it takes less time to receive the money and it’s more secure. Unfortunately, the process isn’t perfect and mistakes do happen. So, what do you do when your tax refund is sent to the wrong account? Keep reading to find out.
Why Was My Refund Put Into The Wrong Account?
There are a few reasons why your tax refund could inadvertently end up in someone else’s bank account.
- You made an error entering your account number or bank routing number on your tax return. If you omit a number or accidentally transpose one, your refund could be rejected or sent to the wrong account.
- You could be a victim of tax fraud. In this instance, you would be notified that your electronic return is being rejected because someone already filed using your Social Security number. It also means there’s a good chance that they already received your refund, as well.
If you believe you are a victim of tax-related identity theft, follow the steps outlined on IRS.gov. This includes continuing to file your taxes (by paper) and completing Form 14039, Identity Theft Affidavit. You should also visit IdentityTheft.gov and take the appropriate steps to protect yourself and your financial accounts.
For cases where you’ve accidentally entered the wrong account or routing number, what happens next depends on whether or not it passes the validation check. If the number is rejected by the IRS, it will issue a paper check instead of a direct deposit. In instances where the IRS validates the number but your bank rejects it, the funds will be returned to the IRS. Once the IRS receives those funds, it will issue a paper check. Things get a bit complicated, however, when the IRS validates the number and your bank accepts the funds.
What To Do If Your Refund Is Incorrectly Deposited Due To an Error
If the IRS validates your account number and your bank deposits your refund into the wrong account, you must work directly with your bank to resolve the issue. This is because the IRS assumes no responsibility for your errors. Even if a tax preparer made the mistake, you’ll need to contact your financial institution if you hope to retrieve your refund. Unfortunately, there is no guarantee you’ll get the money back. Generally, one of three things may happen:
- The bank may attempt to recover the funds from the other account holder. If they are returned, the funds will be sent to the IRS. Once they receive them, the IRS will issue a check and send it to your last known address on file.
- You can file Form 3911, Taxpayer Statement Regarding Refund if your bank does not respond to your request for assistance. This will initiate a trace and allows the IRS to contact the bank on your behalf. Your bank has 90 days to respond to the IRS.
- The bank may refuse to return the funds or the funds may no longer be available. If this happens, you may need to file a civil lawsuit to retrieve your money. The IRS cannot compel the bank to return the funds once they are deposited.
Hiring an attorney to get your refund back from the bank is very costly. In some cases, the legal fees may even exceed your refund. If this happens, you may find yourself in the unfortunate position of having to cut your losses.
How To Avoid Costly Refund Mistakes
The best way to avoid costly refund mistakes is to always double-check your return. Make sure your account numbers are accurate. If you think you’ve made a mistake, and the IRS has not yet accepted your electronic return, you can call 800-829-1040 and ask them to stop the direct deposit.
It’s equally important to ensure your address is also correct. If the direct deposit fails and they mail a paper check to an old address, the U.S. postal service will not forward the check to your new address. You can update your address by submitting Form 8822, Change of Address.