Client’s Guide to the All-Electronic Federal Tax System

As we noted earlier this month, on September 30 the Internal Revenue Service (IRS), in coordination with the U.S. Department of the Treasury, will stop issuing and accepting paper checks for most federal payments, including individual tax refunds and payments. This transition is part of a broader federal initiative to modernize payment systems, reduce fraud, and increase efficiency.

The change will have significant implications for individual taxpayers, trusts, estates, and certain business and international taxpayers. With that in mind, we’ve prepared the following Client’s Guide to help you through the transition.

Key Changes
1. End of Paper Refund Checks and Payments

Refunds: After September 30, 2025, the IRS will no longer issue paper refund checks to individual taxpayers, except in limited circumstances where permitted by law. Most refunds will be delivered via direct deposit or other secure electronic methods such as prepaid debit cards or digital wallets.

Payments: The IRS will also require that all tax payments be made electronically. Paper checks and money orders will no longer be accepted for tax payments soon after this date. We are awaiting for official IRS guidance on the date, which is likely to come after September 30th and before the end of the year.

2. Electronic Payment and Refund Methods
Direct Deposit: The primary method for receiving refunds will be direct deposit into a U.S. bank account. Taxpayers should ensure their banking information is current and accurate.

Alternative Options: For those without access to traditional banking, options such as prepaid debit cards, digital wallets, or other secure electronic methods will be available. The IRS and Treasury are expected to provide further guidance on these alternatives.

Enrollment Resources: Taxpayers can find resources to open low-cost or no-cost bank accounts at FDIC: GetBanked and MyCreditUnion.gov. The Direct Express® Debit Mastercard® is also available for federal benefit recipients without bank accounts.

3. Exceptions and Hardship Provisions
The executive order allows for exceptions in cases where electronic payments are not feasible, such as for individuals without access to banking services or where electronic disbursement would cause undue hardship. Treasury and the IRS are expected to issue guidance on how to apply for such exceptions.

4. Special Considerations for Trusts and Estates
Trusts and estates currently cannot use IRS Direct Pay and must use either wire transfers or the Electronic Federal Tax Payment System (EFTPS) for payments. Form 1041 does not currently support electronic refund or payment fields, complicating compliance.

Trustees and administrators should enroll in EFTPS as soon as possible, as the process requires a mailed PIN and can take several days or longer to complete. Wire transfers are also an option but may involve additional administrative steps and costs.

The IRS has not yet announced any extension or relief for trusts and estates, and practitioners have requested exemptions until electronic systems are updated to accommodate these entities.

5. International and Non-U.S. Taxpayers
Non-U.S. individuals, such as short-term business visitors or foreign assignees, may face challenges opening U.S. bank accounts, which are required for direct deposit. The IRS may provide exceptions or alternative payment methods for these taxpayers, but details are pending.

Employers with global mobility programs should review their tax equalization policies and consider alternative arrangements, such as settlement services or adjusting tax gross-ups to minimize the need for refunds.

IMPORTANT! Action Steps for All Clients
The IRS’s move to electronic-only refunds and payments represents a significant change in federal tax administration, one that will help all taxpayers experience faster, safer, and more efficient transactions. One essential step for all filers is to set up online accounts to facilitate electronic transactions, including ID.me. To that end, we have prepared step-by-step instructions for individuals, businesses, and trusts for opening payment options to the IRS as well as the State of Illinois. To set up your online account(s) use our Client’s Guide to Setting Up ID.me and IRS Online Accounts