As the IRS Phases Out Paper Checks, Vulnerable Taxpayers Must Not Be Left Behind

NTA Blog: As the IRS Phases Out Paper Checks, Vulnerable Taxpayers Must Not Be Left Behind

Introduction

 

Recently, I’ve received many questions about how Executive Order (EO) 14247, Modernizing Payments To and From America’s Bank Account, will affect taxpayers. The good news is that most taxpayers already receive their refunds using direct deposit and may not even be aware of the change.  During the 2025 filing season, about 94% of individual taxpayers provided their direct deposit information on their Form 1040.  But some taxpayers are unable to provide direct deposit information or may not wish to do so, and they may be wondering what the impact of the EO will be going forward.

 

The EO directs the Treasury Department, including the IRS, beginning October 1, 2025, to transition all federal disbursements, including tax refunds, to electronic payments for the purpose of improving efficiency, reducing fraud, and lowering costs. The EO correctly recognizes that some taxpayers may need additional support to adapt and therefore authorizes certain exceptions. I encourage this flexibility to be used to create exceptions for vulnerable groups, including those who are unbanked and underbanked, disabled, living abroad, victims of domestic violence, or have deeply held religious beliefs that conflict with the policy. With thoughtful safeguards, this transition can combine efficiency and fairness, ensuring trust in the tax system.

 

As I highlighted in my 2022 Annual Report to Congress, paper processing – including paper refund checks – has long been the IRS’s “kryptonite,” causing operational delays, inefficiencies, and increased vulnerability to theft. Paper refunds are more susceptible to loss, theft, and fraud, and once compromised, they can trigger a long and stressful resolution process for the affected taxpayer. In fact, Treasury checks are 16 times more likely to be lost, stolen, returned, or altered than electronic payments.  I strongly support efforts to modernize and digitize payment delivery wherever feasible. Yet modernization must be equitable and avoid any unintended negative consequences. I believe this change can be a win for everyone if implemented with care, communication, and compassion.

We should not, however, advance technological change at the cost of excluding those who need accommodations.

 

Understanding Executive Order 14247

 

On March 25, 2025, President Trump issued Executive Order 14247, which generally requires all federal agencies, including the IRS, to cease issuing paper checks by September 30, 2025. It further orders, as soon as is practicable, that government agencies must electronically process all payments received. The executive order aims to streamline government operations, enhance payment security, and reduce administrative burdens and costs. I applaud the goal of modernization, particularly efforts that reduce the IRS’s dependence on paper.

 

What Does This Mean for Taxpayers?

 

The IRS will begin implementing the EO for 2025 tax returns. For 2024 and prior tax returns, there will be no change in how taxpayers receive payments from or make payments to the IRS. For 2025 returns filed in 2026, taxpayers will need to provide the IRS with their direct deposit information unless they qualify for an exception or are willing to experience delays. The IRS is currently working to formalize the exception process for the 2025 tax returns and develop alternative methods of payment for subsequent tax years. Additionally, I don’t anticipate any changes before 2027 as to how taxpayers must pay the IRS, as it will need time to update its forms, instructions, and technology infrastructure to fully implement the EO.

 

Key implementation highlights:

 

• Returns for pre-2025 tax years will not be affected.  However, taxpayers currently filing on extension are encouraged to include their direct deposit information.
• Taxpayers who do not provide bank account details or request an exception for 2025 returns will face refund delays.
• The IRS will send a letter (1) requesting direct deposit information and (2) providing information on how to request an exception.
• If a taxpayer does not provide direct deposit information or obtain an approved exception, the IRS will hold off on issuing a paper check refund for six weeks after a 2025 return is filed.
• There is no immediate change to how taxpayers pay the IRS, although additional updates are anticipated starting in 2027.

 

Tailored Relief through Exceptions is Essential

 

The EO grants the Secretary of the Treasury the authority to approve “limited exceptions where electronic payment and collection methods are not feasible.” This authority provides a crucial safeguard, but it must be used proactively, compassionately, and with stakeholder input.

 

Last year, about 10 million individual taxpayers received their income tax refunds by paper check and thus may experience barriers in receiving their tax refunds electronically. Many of these taxpayers receive paper checks due to systemic, geographic, or religious factors. Several examples of these groups include:

 

• Unbanked Households: According to the Federal Deposit Insurance Corporation’s 2023 report, 4.2 percent of U.S. households – about 5.6 million people – do not have a checking or savings account. Without a bank account or other accommodations, receiving a direct deposit is simply not possible. For these individuals, paper checks are not a preference; they’re a lifeline.

 

• Americans Living Abroad: U.S. citizens residing oversees frequently face challenges accessing U.S. financial institutions. Many foreign banks cannot accept or process IRS transactions, and the IRS does not routinely offer international electronic transfers.

 

• Taxpayers With Religious Constraints: Some religious communities, including some Amish and Mennonite sects, avoid using electronic financial systems altogether based on deeply held religious beliefs. Forcing them to comply with digital payment requirements would violate their rights and force them to make an untenable choice between religious freedom and tax compliance – an unacceptable position in a country that values both.

 

• Victims of Domestic Violence: Victims may be unwilling or unable to share their bank information with the IRS due to safety, control, or privacy concerns. This is because, in some cases, the abuser may monitor the victim’s financial transactions, including deposits, which may reveal the victim’s location or financial activity and thereby trigger further abuse or stalking.

 

• Individuals With Disabilities: Some individuals with disabilities face practical and systemic barriers to using electronic financial systems, including cognitive disabilities, sensory impairments, mobility impairments, or technological barriers.

 

Although not applicable to IRS payments, Congress recognized similar challenges when it enacted 31 USC § 3332 regarding federal wage, salary and retirement payments. The statute provides authority to waive the direct deposit requirement for individuals for whom compliance imposes a hardship. Treasury has created exceptions to electronic funds transfers of non-tax payments, including mental impairment, living in a remote geographic location lacking the infrastructure to support electronic financial transactions, lack of a foreign country’s infrastructure to support payment by electronic funds transfer, military operations, and living in disaster areas. The statute requires the submission and approval of a waiver for alternative payment methods. This could serve as a roadmap for the IRS in establishing exceptions.

 

Anticipated Exception Procedures

 

External stakeholders such as the , American Institute of Certified Public Accountants, Texas Society of Certified Public Accountants, and the Nez Perce Tribe have voiced their concerns, offering recommendations that would allow the IRS to modernize its payment procedures without sacrificing fairness.

 

Their proposals include:

 

• Creating qualified exceptions for the unbanked and for taxpayers with religious objections;
• Expanding access to no-fee or low-barrier financial services;
• Providing dedicated resources to Americans living abroad; and
• Offering secure, limited-use debit cards issued directly by the Treasury Department.

 

The IRS is considering limited exceptions where electronic payment and collection methods are not feasible. The Taxpayer Advocate Service (TAS) and external stakeholders, including tax practitioners and software providers, have identified and recommended several situations where a taxpayer should be exempt from the electronic payment mandate for their 2025 tax year refunds while the IRS explores possible solutions. These who may require exemptions include:

 

• Unbanked taxpayers
• Taxpayers with religious objections to participating in the electronic payment system
• Incarcerated taxpayers
• Disabled taxpayers
• Taxpayers with high-fee bank accounts
• Taxpayers with foreign bank accounts
• ITIN holders
• Minority or elderly taxpayers
• Domestic violence victims
• Taxpayers in the cannabis industry
• Taxpayers with limited access to financial infrastructure (rural/tribal)
• Taxpayers living in designated disaster areas

 

What Taxpayers Can Expect if Their 2025 Tax Return Does Not Include Direct Deposit Information

 

It is anticipated that the IRS will send taxpayers a letter asking them to provide or update their banking information within 30 days if their return fails to include the information or if the direct deposit has been rejected by their bank.

 

Taxpayers can also check the “Where’s My Refund?” app, which will include a statement directing the taxpayer to provide bank information or to call to request an exception if the bank information is missing. It is expected by year-end that the IRS will provide additional guidance on requesting an exception and will have updated the Individual Online Account functionality to allow taxpayers to upload their bank information for direct deposit of their refunds. Providing taxpayers with the ability to self-serve will not only eliminate telephone calls but will allow taxpayers to enter their information 24/7.

 

To avoid refund delays, I strongly encourage taxpayers to provide their direct deposit information on their 2025 tax return or update their direct deposit information through their IRS online account. This new feature is expected to be available before 2026.

 

CAUTION: Verify and confirm that the account number and routing number are entered correctly. Errors will cause delays and other complications.

 

The IRS direct deposit request letter will also provide information on exceptions and provide a dedicated phone line taxpayers may call to request an exception and issuance of a paper check. This is good news, as the exception procedures will ease the transition for millions of taxpayers who might encounter barriers and challenges to complying with the EO and thereby reduce refund delays. Going forward, the IRS should continue to explore all options for making this transition to electronic payments as painless as possible for taxpayers.

 

Unfortunately, when a taxpayer calls the dedicated phone line to request an exception, it is anticipated for security reasons that IRS telephone assistors will not be permitted to receive taxpayers’ bank account and routing information during the call. This seems like a missed opportunity, and I recommend the IRS consider secure solutions to ease the burden for taxpayers seeking to provide the necessary information. Many taxpayers have experienced difficulties in opening or accessing their online accounts, and if they cannot provide the information in-person or on the phone, it will result in the IRS unnecessarily issuing paper checks. This is another reason why the IRS needs the help of Congress, tax professionals, the tax community, and the press to inform taxpayers and convey information about the new direct deposit requirement and potential delays.

 

Taxpayers should be aware that without direct deposit information or an approved exception, the IRS will hold their refund for six weeks before issuing it via a paper check.

 

As the IRS begins to implement these changes for 2025 tax returns, it is critical that the IRS develop a robust communications strategy that informs taxpayers of these changes while providing them the resources they’ll need to comply. Millions of taxpayers depend on their refunds to meet their basic living expenses, and they should not be surprised by unanticipated delays.

 

Conclusion: Taxpayer Rights Must Be a Cornerstone of IRS Modernization

The move away from paper checks aligns with the broader goal of building a more efficient, secure, and modern tax administration system. This is for the good, but progress should not come at the expense of the most vulnerable among us. For some taxpayers, paper checks are not just a matter of preference; they are the only option that respects their financial reality, geographic constraints, or religious convictions.

 

As the IRS implements this directive, it must ensure no taxpayer is left behind. Exceptions must be accessible, clearly communicated, and fairly administered. Otherwise, while the IRS makes the tax system more efficient for some, it will simultaneously make it less accessible for others.

 

TAS continues to work with the IRS and Treasury to identify taxpayers who may be adversely affected by the new procedures and recommend safeguards and alternatives that both promote efficiency and fairness and ensure that the transition to a paperless environment does not harm taxpayers. With thoughtful implementation, the IRS can achieve the Executive Order’s intended benefits of improving efficiency and payment security without imposing undue taxpayer burdens.

 

 

 

 

 

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