Tax Question of the Week: What is a Split Refund?March 11, 2016
: Did you know there are alternative ways to claim your federal income tax refund?
As tax season gains momentum with each day, it is important to remember how your taxes from last year will affect the refund you receive in 2016. There are several ways to claim your federal income tax refund, one of which includes splitting your direct deposit refund among two to three different accounts, with up to three different U.S. financial institutions.
How do I claim a split refund?
In order to split your refund, you need to:
- Complete and attach Form 8888, Allocation of Refund, to your federal income tax return to let the IRS know how much and to which of your accounts you want your refund deposited to.
What are the benefits to claiming a split refund?
Splitting your refund allows you to:
- Send your money where you want it to go the first time
- Avoid the hassle of depositing checks
- Allocate it to several accounts- perhaps some for immediate use, and some for more long term investment. Note that refunds can only be deposited into checking and savings accounts. Examples of savings accounts include passbooks, IRAs, HSAs, Coverdell education savings accounts. You need an account number and routing number for each account designated.
Are there any accounts that you can’t deposit a refund into?
A split refund cannot be allocated to:
- Someone else’s account (unless it’s a spouse and you have a joint refund)
What are the other options for claiming my refund?
Besides doing the traditional check or direct deposit, you can also claim your refund in the form of:
- Savings bonds- up to $5,000 can be claimed through U.S. Series I Savings Bonds. Because these are considered long term investments, you cannot redeem the amount until 12 months after you purchase them.
- Anticipation loan- This option is not recommended, but some businesses allow you to receive a rapid refund in just one or two days through a refund anticipation loan, but you have to pay significant fees for receiving the refund early, which could put a dent in the money you’re actually getting back.
Keep in mind that getting your refund through direct deposit, whether you’re allocating to one account or splitting it between a few, is the safest and easiest way. You can choose this splitting option on any original tax return, even if you have requested an extension of time to file (October 15th).
Questions on your refund? Contact any member of our Tax Services Team.