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The IRS is Stopping Paper Refunds

Executive Summary

The IRS has announced that it will begin phasing out paper refund checks for individual taxpayers on September 30, 2025, and will primarily move refunds to direct deposit and other secure electronic methods. This action implements Executive Order 14247 and marks the next step in the Service’s multi-year Paperless Processing Initiative (PPMI), which aims to accelerate refunds, reduce costs, and combat fraud. Detailed operational guidance for 2025 returns will be issued before the 2026 filing season. Limited exceptions and alternatives (e.g., prepaid debit cards) will be available for taxpayers who do not have a bank account.

Timeline & Legal Authority

  • Aug. 2, 2023 — Treasury and the IRS launched the Paperless Processing Initiative, targeting paperless processing by Filing Season (FS) 2025 and promising faster refunds via digitization.
  • Sept. 23, 2025 — IRS News Release IR-2025-94 confirms the phase-out of paper refund checks for individuals starting Sept. 30, 2025, “as required by Executive Order 14247,” with more guidance coming before the 2026 filing season.

What, Practically, Is Changing?

  • Refund delivery method: “Most refunds” will be by direct deposit or another electronic method. Paper checks will begin to phase out on September 30, 2025.
  • Speed & security: IRS cites that electronic refunds are typically funded in less than 21 days when e-file + direct deposit + no issues; paper checks can take over six weeks and are 16 times more likely to be lost, stolen, altered, or delayed.
  • Access for the unbanked: The IRS indicates prepaid debit cards, digital wallets, and limited exceptions will be available; it also points taxpayers to FDIC GetBanked/MyCreditUnion.gov to set up low/no-cost accounts.

How This Fits the Broader “Paperless” Push

  • The PPMI aims to digitize paper returns and correspondence to accelerate processing and reduce errors and costs. Treasury projected eliminating up to 200 million pieces of paper annually and cutting processing times in half—a driver of faster refunds.
  • IRS/Treasury progress updates note expanded scanning and mail automation, and millions of paper pages digitized, supporting quicker downstream refund issuance.
  • Independent overseers (TIGTA, TAS) have tracked FS2025 performance and the digitization pilots, confirming higher e-adoption, more digital responses to notices, and continued modernization.

Implications for Taxpayers

  1. Bank info required: Clients should have routing/account numbers ready and accurate. Encourage them to verify with their bank (name on account must match the return).
  2. Name/ID mismatch delays: Direct deposit rejections (e.g., name control mismatch, closed account) will slow refunds. Expect fallback procedures in forthcoming guidance.
  3. Alternatives for the unbanked: IRS indicates prepaid debit and digital wallet options will be available; also, look for limited waivers/exceptions.
  4. Refund status tools: Continue steering clients to Where’s My Refund? and Where’s My Amended Return?—both widely used and improving with the PPMI.

Implications for Practitioners (Action Checklist)

Now through year-end 2025

  • Update your engagement letters and client organizers to state: “Default refund method is electronic; paper checks are being phased out starting Sept. 30, 2025.” Cite the IRS announcement.
  • Add a direct-deposit verification step to your workflow (collect voided check image or bank letter; confirm name control matches the return).
  • Build a fallback protocol for rejected deposits (closed accounts, typos) so staff know whether to re-issue electronically or pursue an exception. Forthcoming guidance may prescribe specific steps—stay tuned.
  • Prepare scripts/emails for:
    • Unbanked clients (how to open an account or request a prepaid option).
    • Deceased/estate returns (refund payee and account-titling issues).
    • Injured Spouse/Offset cases (e.g., Treasury Offset Program still applies; electronic method doesn’t change offset rules).

Filing Season 2026 (for TY2025)

  • Confirm software settings default to electronic refunds and that taxpayer consent language for e-refunds is up to date.
  • Refresh staff training on identity theft filters and refund fraud indicators—electronic refunds move faster, so early detection is key. Oversight bodies continue to emphasize fraud controls as the Service digitizes.

Exceptions & Special Situations (What We Know So Far)

The IRS indicates there will be “limited exceptions” for taxpayers who lack electronic access or face qualifying hardships, plus alternatives (prepaid/debit/digital wallet). Specific criteria and request procedures will be outlined in the detailed guidance before the 2026 filing season. Until then, existing refund processes continue for returns filed on extension before Dec. 31, 2025.

Benefits & Risks

Benefits

  • Faster funding (often less than 21 days with clean e-file + direct deposit).
  • Lower fraud/loss risk vs. mailed checks (IRS cites 16 times higher check vulnerability).
  • Administrative savings that can support service improvements (core PPMI objective).

Risks / Practice Considerations

  • Unbanked/underbanked clients may need on-ramp support (account setup; prepaid).
  • Name control mismatches and joint vs. separate account titling can bounce deposits.
  • Increased phishing targeting “refund setup” and “account updates.” Reinforce “IRS will not email/text to ask for bank info”—use irs.gov portals only. (Expect anti-fraud reminders in IRS guidance.)

How This Interacts With Other Refund Rules

  • Offsets (past-due federal/state debts, child support, etc.) remain in force regardless of payment rail.
  • Injured Spouse (Form 8379) processing still applies; the deposit may be split or delayed depending on offset determinations.
  • Deceased taxpayers/estates: Expect clarifications on routing refunds to estate accounts or representative payees in the forthcoming guidance.

State Refunds Are Separate

The federal move does not automatically change state refund methods. California and other states may continue issuing paper checks unless they announce similar changes. Watch your state FTB/Department of Revenue/State tax agency guidance.

Practitioner Prep Packet (You Can Re-Use)

  1. Client One-Pager — “Federal paper refund checks are being phased out starting Sept. 30, 2025. Please provide bank routing/account details or ask us about prepaid options.”
  2. Banking Info Form — Include fields for account title/ownership matching the return, and an attestation.
  3. Unbanked Guide — Steps to open low-cost accounts (FDIC GetBanked, MyCreditUnion.gov) or request alternatives.
  4. Exception Workflow — Placeholder until the IRS issues criteria/procedures (flag clients likely to qualify).
  5. Fraud-Awareness Email — Remind clients how the IRS communicates and where to check refund status (WMF/WAR tools).

Watch-List: What Guidance We Still Need

  • Formal exception criteria and request mechanics (who qualifies; how to apply).
  • Treatment of special payees (estates, trustees, conservatorships) and third-party banking setups.
  • Fallback rules for rejected deposits and timelines for re-issuance.
  • Whether business/entity refunds will be subject to similar phasing (IR-2025-94 explicitly starts with individual taxpayers).

Bottom Line for Your Clients

  • Date to know: September 30, 2025—paper refund checks begin to phase out for individuals.
  • Action to take now: Confirm or obtain electronic refund capability (bank account or acceptable alternative).
  • Expect more details: IRS will publish the operational playbook before the 2026 filing season; we’ll update your instructions as soon as it drops.