March 4, 2021
3 smart reasons to sign up for direct deposit on your 2020 taxes

3 smart reasons to sign up for direct deposit on your 2020 taxes


Use direct deposit to get your money back quicker.

Sarah Tew/CNET

Whether you’ve already started getting your 2020 tax paperwork together or decided to wait until later in tax-filing season (it starts Feb. 12), there’s one thing you definitely want to do — set up direct deposit with the IRS when you file. This can help you receive your tax refund much more quickly than waiting around for a paper check to arrive (assuming there aren’t any errors and you’re due a refund). And the same rule applies to getting a third stimulus check faster, if and when Congress approves another direct payment.

More than eight out of 10 taxpayers use direct deposit to get their tax refunds, according to In addition, the IRS and US Treasury sent out more than 100 million payments by direct deposit with the second stimulus check. Some people are even required by the US Treasury to use direct deposit to receive their money, such as Social Security beneficiaries.

We understand if you’re hesitant to share personal banking details with another entity, and there are two potential drawbacks that some may encounter — we’ll explain those below. Overall, you may find the benefits of setting up direct deposit with the IRS are compelling this year. There are also distinct benefits to filing your taxes earlier this year. We’ll tell you how to do it.

Get your tax refund back much quicker

When you file your taxes, you usually have the option to add a bank account so you can receive your refund through direct deposit. “The best and fastest way to get your tax refund is to have it electronically deposited for free into your financial account,” the IRS says. You can have your money deposited in up to three different accounts if you’d like to split up your tax refund.

You can also expect a quicker refund if you combine direct deposit with electronic filing, rather than printing out and mailing in paper tax returns. In fact, the IRS expects nine out of 10 taxpayers will receive their refund within 21 days of when they file electronically with direct deposit, if there are no issues with their tax return.

You should also be aware that the IRS is asking taxpayers to avoid filing paper returns, if possible. Filing your return old-school could add to the processing delay the IRS is already experiencing as a result of a backlog of 6.9 million unprocessed paper returns from last year. Filing your tax return closer to the beginning of tax season rather than toward the deadline will also set you up to get your tax return faster — and any unpaid stimulus check money, too.

Read more: Don’t file taxes? Nonfilers might have to this year to get missing stimulus money

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Second stimulus checks: Everything you need to know


Receive your next stimulus check faster

On the whole, people who had direct deposit set up with the IRS received their first and second stimulus checks much sooner than those who didn’t. Now that a proposed third stimulus check is on the table, you’ll want to get your direct deposit information set up as soon as possible. To do this, you’ll need to enter your banking information when you file your 2020 taxes this year.

Unfortunately, the IRS never let recipients of the second stimulus check set up direct deposit. Instead, this group will need to claim their missing money as a Recovery Rebate Credit on their 2020 taxes.

Since it’s too soon to know if new direct deposit registrations would open up for a third stimulus check, your safest bet is to sign up now if you’d like to receive a possible future $1,400 or $2,000 check the fastest way possible. 


If a third stimulus check is approved, you could get it sooner with direct deposit.

Sarah Tew/CNET

Direct deposit is cheaper for you, too

Each paper refund check issued costs US taxpayers more than $1, but only a dime for each direct deposit made, according to the IRS. In 2019, 125.3 million refunds were issued, with around 23 million sent by mail, according to Bankrate. That means in 2019, it cost taxpayers roughly $23 million for paper check refunds to be sent out, and roughly $12.5 million for direct deposit.

What are the potential drawbacks of direct deposit?

When it comes to stimulus check delivery, the second round of checks revealed two issues that affected millions of people (a relatively small percentage of all direct deposit recipients).

Since the IRS didn’t open up direct deposit registration through the Get My Payment tracking tool, anyone who closed or changed bank accounts between the first and second checks was unable to make the correction. If their checks were returned to the IRS, it’s likely this group will need to claim their payments using the Recovery Rebate Credit.

The second issue to know about is that the IRS sent direct deposit transfers to millions of temporary bank accounts used by tax preparation software like TurboTax and Jackson Hewitt (these accounts are a typical part of the third-party tax preparation process). As a result, there were delays with second stimulus check delivery to this group, as the IRS and the companies attempted to untangle the problem. While many may need to claim the stimulus check credit in their taxes, the companies have promised to work with clients to ease the process.


Direct deposit is cheaper than receiving a check.

Sarah Tew/CNET

How you can set up direct deposit with the IRS

When filing taxes, select Direct Deposit as your refund method through your tax software, then type in your bank account and routing numbers — you can still add your bank account information even if you’re not getting a refund. You can find your account and routing number on your bank’s website when you sign in, call your bank branch or locate the numbers on a check. You can also give your tax preparer this information if you don’t file your own taxes. 

If you’re a nonfiler, that is, someone who is not usually required to file taxes, but you’re filing for the Recovery Rebate Credit to get a missing stimulus check, you’ll need to file Form 1040 or Form 1040-SR (PDF).

The IRS says your refund should only be deposited directly into a US bank or US bank-affiliated account, and that it needs to be in your name, your spouse’s name or both if it’s a joint account.

For more information, here’s what you need to know about stimulus checks and your 2020 taxes. Plus, how much money you could get with a third stimulus check and when and how to request an IRS payment trace.

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