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Three reasons why your tax refund may not make it to your bank account

Money generic
Posted at 4:00 AM, Mar 16, 2021

With the Coronavirus pandemic stretching into a second year, more people are counting on their tax refunds to pay down debts than ever before.

What some people may not realize is there are instances where the IRS will choose to pay off debt for you.

Kimberly Palmer, a personal finance expert with NerdWallet, says in the past there have been three main reasons:

  1. You have unpaid federal student loans
  2. You owe taxes from a previous year
  3. You owe child support

"It's pretty limited circumstances where the IRS will actually send your refund to paying down debts instead of you," said Palmer.

She says what people don't realize is that your refund could be impacted by your bank account balance.

If you've overdrafted your account to pay bills and your refund is direct deposited, it will be used to cover that negative balance first. Then the remaining amount would be made available.

The same could be true if you owe others.

"For example, if you have unpaid debt, and the collectors have actually won a court judgment against you and taken that your bank, the bank can actually take the refund to pay that debt down," said Palmer.

Here's the good news. This year tax refunds will not be taken for unpaid student loans.

If you are worried about owing your bank, Palmer says you can request a paper check from the IRS. You can then cash it someplace else in order to access your money.

As for the fees, Palmer says with the pandemic banks are cutting people some slack.

"It's actually a good idea to call your bank and explain what's going on," said Palmer. "If it's pandemic related, they might be able to cut you a break. There are programs like that available from a lot of banks right now."

No matter the case, Palmer says the quickest way to get your refund - file electronically.

Here are a number of ways to file your taxes for free- that have been available in past years.