Jeanette A. Tucker, Claesgens, Mark A. | 1/26/2007 2:13:35 AM
New this year, U.S. citizens entitled to a tax refund can have their money direct-deposited in up to three different accounts.
By using Form 8888, taxpayers can direct refunds to one, two or three accounts, such as checking, health savings and retirement, according to LSU AgCenter family economist Dr. Jeanette Tucker.
"You indicate the amount you want to deposit directly from your tax return in each account. There is no minimum amount requirement," Tucker said.
In the past, you could receive your refund in the form of a check or a direct deposit to either your checking or savings account as indicated on Form 1040. These options are still available.
"This new option might encourage greater savings and more banking," Tucker said.
Direct deposits, first offered in 1987, are being used now by about half of all refund filers. The IRS estimates that 52.7 million refunds amounting to $134.2 billion were deposited directly into bank accounts last year.
More than 75 percent of U.S. taxpayers are entitled to a refund (averaging $2,171) each year. Some may not understand how to adjust their W-2 statement to limit their payroll withholding amount; however, many perceive paying in enough to get a tax refund as a good way to force themselves to save money, according to Tucker.
"Actually, the taxpayer would be better off taking the additional amount and depositing it in an account that would earn interest during the year," Tucker said, explaining, "The federal government does not pay interest, although it has the use of taxpayer money that is stashed away in payroll withholding accounts until the taxpayer requests the excess when he or she pays taxes by April 15 of every year."
Direct deposit offers safety and speed. Refunds are received in two weeks or less.
"This ability to split or allocate direct deposit refunds among multiple accounts could mean greater savings for families who might otherwise quickly ‘blow’ the whole amount on one major purchase instead of setting aside at least part of their tax refund for future use," Tucker said.
Computer users can download Form 8888 at http://www.irs.gov/pub/irs-pdf/f8888.pdf.
For related family economics and consumer topics, click on the Family and Home link on the LSU AgCenter homepage at www.lsuagcenter.com. For local information and educational programs, contact an extension agent in your parish LSU AgCenter office.