Update on Shift to Electronic Refunds and Payments
Additional clarification was received from Denise Davis, a director at the IRS Taxpayer Services Division. The IRS’ primary focus is on implementing electronic refund and payment processing for the 2025 tax year – with implementation beginning in January 2026.
With days remaining until the October 15th tax deadline, taxpayers may choose to prepare early, however action is not required at this time.
What Does This Mean and How Will It Work?
The IRS intends to send letters to Individuals that do not provide banking information on their 2025 tax returns. Upon electronic submission, taxpayers will see a message that “their return is being accepted and will be processed – however, we will need their banking information, and they will be contacted by the IRS for that.” Taxpayers will be able to securely update their banking details through their Individual Online Account. To mitigate fraud risks, the IRS will not accept direct deposit information over the phone or in person.
In addition, the IRS will have “a dedicated phone extension for taxpayers to provide an exemption exception”. Refunds (and tax returns) lacking banking information will be held for six weeks pending a response. After that period, the IRS will process the refund to avoid accruing interest. We expect additional guidance as we approach the 2025 tax filing season.
Impact on Businesses
This shift also applies to business taxpayers, who will be required to receive refunds and make payments electronically. Updates to business tax forms are anticipated, with more details to come when the 2025 tax forms are released.
Originally Published: September 22, 2025
Starting September 30, 2025, in a sweeping modernization effort, the Internal Revenue Service (IRS) and other federal agencies have announced they will officially stop issuing paper checks for most transactions. This change, mandated by Executive Order 14247 signed by President Donald Trump in March 2025, is part of a broader initiative to streamline federal financial operations and reduce fraud, theft, and inefficiencies.
Why the Change?
The federal government cited several reasons for the transition:
- Security: Paper checks are more likely to be lost, stolen, or altered than electronic payments
- Cost: Maintaining infrastructure for paper-based payments cost over $657 million in fiscal year 2024
- Efficiency: Electronic payments are faster and reduce delays in processing refunds.
Eight in 10 taxpayers already process their tax refund via direct deposit and nearly 98% of social security and veterans’ benefits are sent electronically using direct deposits.
What and Who Is Affected?
The change impacts a wide range of federal transactions, including:
- Tax refunds (direct deposits or prepaid cards in lieu of paper refund check)
- Benefit payments (e.g., Social Security, Veterans Affairs)
What You Should Do Now
To avoid disruptions:
- Review your current refund methods.
- Ensure your bank account details are up to date with the IRS and other federal agencies. While the IRS will require all refunds to be issued electronically as of September 30, 2025, taxpayers will still be able to submit tax payments to the IRS via check. The Executive Order states that taxpayers should make all payments to the Federal Government electronically as soon as practicable. Therefore, we do encourage taxpayers who currently pay federal taxes via paper checks to explore the variety of options provided by the government to submit tax payments electronically. Such tax payments would include estimated quarterly payments and year-end tax balances due.
- Alternative electronic payment methods include:
- IRS Direct Pay: Free direct transfers from bank accounts.
- Electronic Federal Tax Payment System (EFTPS): Ideal for scheduled payments; provides the ability to schedule, track, change or cancel payments. Please note this method requires enrollment in advance.
- Debit/Credit Cards: Via IRS-approved processors (fees may apply).
- Digital Wallets and IRS2Go App: Mobile-friendly options.
- Prepaid Cards: Such as the Treasury-sponsored Direct Express® Debit Mastercard® for those without bank accounts.
Exceptions to the Rule
While the shift is universal, the executive order allows for limited exceptions:
- No access to U.S. based banking services.
- Undue Hardship
- National security or law enforcement-related transactions.
- Other cases as determined by the Secretary of the Treasury.
We expect additional guidance on applying for an exception.
What You Should Do Now
This move marks a significant shift in how Americans interact with the IRS and other federal agencies. While it may require adjustments, the transition to electronic payments promises greater security, speed, and reliability. Taxpayers are encouraged to act now to ensure a smooth transition and avoid last-minute complications.
Contact Us
For more information on this topic, reach out to a member of Withum’s Business Tax Services Team.
