For the 2007 tax filing season, the Internal Revenue Service is launching an option for tax filers called the “split refund.”

“The split refund option allows filers receiving a refund through direct deposit to arrange for part of it to go into a savings or other account,” says Debra Pankow, North Dakota State University Extension Service family economics specialist. “This will make it easier for tax filers receiving large refunds from the earned income credit and child tax credit to take advantage of savings and building assets for retirement, purchasing a home or other things at the same time they file their return.”

The split refund option is used only to deposit funds directly into a savings or other account, such as an individual retirement account. Tax filers can split their refund for direct deposit into as many as three accounts. However, tax filers will not be able to directly deposit their refund into a savings or other account and receive the rest of the refund as a paper check mailed by the IRS.

Form 8888 must be filed with the IRS for those wishing to deposit their refund in more than one account. Taxpayers also are encouraged to submit the correct routing numbers for each account that will receive a portion of the refund. If the IRS receives a wrong routing number, it will mail a paper check for the entire refund. If a refund goes to a wrong account, the taxpayer and the financial institution are responsible for correcting the problem.

Taxpayers should contact the financial institutions where the funds will go to make sure joint refunds that will go into an individual account are accepted. Some institutions do not allow it.

“The split refund may not be the most appropriate option for filers who could lose benefits, such as Medicaid or food stamps, because their savings are over the limits required by these programs,” Pankow says. “However, there are savings options, such as the Saver’s Tax Credit and Roth IRAs, that might benefit many.”

Additional information is available through your tax preparer or at volunteer income tax assistance sites. IRS-certified volunteers prepare taxes or answer questions free of charge at VITA sites located in many communities. For a location near you, call (800) 829-1040.

NDSU Agriculture Communication