What Happens When Your Bank Account is Closed and How to Avoid Future Issues
Dealing with financial changes, such as the closure of a bank account, can present challenges when you're also navigating the tax season. If you've recently had your bank account closed, you may have experienced an returned tax refund. But what if your next refund, such as an unemployment refund, faces the same issue? Let's explore what happens in such situations and how to avoid similar issues.
Understanding IRS Refund Policies
When your bank account is closed, the IRS has several options for handling your tax refund. Initially, the refund may be returned to the IRS because the direct deposit attempt fails. Once the IRS receives this information, they discontinue the direct deposit process and move forward with other methods to send your refund.
One-Time Solution for Future Refunds
For ease of use and security, it's advisable to use a trusted individual's bank account when submitting updates, especially if you know your account was recently closed. Trust is crucial, as you'll be providing sensitive financial information to this person. Following the initial complications, the IRS will typically issue your refund via check, rather than attempting another direct deposit.
Steps to Take When Your Bank Account is Closed
While you can't prevent the immediate return of your refund, you can take steps to ensure that your next refund goes smoothly. Here are some important steps to follow:
1. Update Your Direct Deposit Information Promptly
Log in to your IRS account as soon as possible if you haven't already done so. Click on the 'Update Direct Deposit Information' or 'Change Direct Deposit' section. Input the details of a new bank account where you want the refund to be deposited. Submit the updated information and wait for confirmation.2. Provide a Physical Address for Your Refund
Ensure that you provide a valid mailing address with your IRS forms. This way, if direct deposit fails, the IRS can send your refund via check, which is often simpler and less stressful than waiting for a new direct deposit setup.
3. Monitor Your Mailbox for Refunds
After making the necessary updates, keep an eye on your mailbox for any refund checks that may be sent. It might take a few weeks, but the IRS will issue your refund via check rather than directly.
Why Direct Deposit Fails and Future Checks
The IRS system is designed to handle such situations efficiently. When a direct deposit attempt fails because the account is closed, the system triggers a notification. The IRS then puts a hold on the refund processing until a new direct deposit account is provided or an alternative method is used.
Once your return is processed, the IRS will not attempt another direct deposit to a closed account. Instead, they will use the next available method, which often is issuing a refund check. This process is put in place to ensure that refunds reach taxpayers safely and efficiently.
Conclusion
When your bank account is closed, it's essential to act quickly to prevent additional complications with your refund. By following the steps outlined above, you can ensure that your tax refunds are processed smoothly in the future. Remember, using a trusted individual's account for updates can simplify the process and minimize any potential issues.
If you face similar situations in the future, staying proactive and communicating with your financial advisor can help navigate the process more effectively.