Phasing out checks threatens vulnerable taxpayers

The Trump administration's executive order to phase out paper checks may harm certain taxpayers, warns Taxpayer Advocate Erin Collins.

Executive Order 14247 directs the Treasury Department, including the Internal Revenue Service, to transition all federal disbursements — including tax refunds — to electronic payments, beginning Oct. 1. The goal is to improve efficiency, reduce fraud and lower costs. 

The IRS will begin implementing the order for 2025 tax returns. Those who do not provide direct deposit information or request an exception for 2025 returns will face a six-week delay in receiving a paper check refund. Exceptions include mental impairment, living in a remote geographic location lacking infrastructure to support electronic transfers, military operations, and living in disaster areas.

"I encourage this flexibility to be used to create exceptions for vulnerable groups, including those who are unbanked and underbanked, disabled, living abroad, victims of domestic violence, or have deeply held religious beliefs that conflict with the policy," Collins wrote in her blog. "With thoughtful safeguards, this transition can combine efficiency and fairness, ensuring trust in the tax system."

There is no immediate change to how taxpayers pay the IRS; updates are anticipated starting in 2027. 

Tasos Katopodis/Bloomberg

Groups like the American Institution of CPAs, American Bar Association, the Texas Society of CPAs and the Nez Perce Tribe, have voiced concerns with the order, as the change threatens vulnerable taxpayers, like the unbanked and underbanked, the disabled, taxpayers who live abroad, victims of domestic violence or those with certain religious beliefs that conflict with the policy. 

Last year, about 10 million people received income tax refunds via paper checks, and they may face hurdles receiving their refunds electronically.

According to a 2023 report, 4.2% of U.S. households — or 5.6 million people — do not have a checking or savings account, making paper checks a necessity. U.S. citizens living abroad often face challenges, as many foreign banks cannot accept or process IRS transactions, and as the IRS does not usually offer international electronic transfers. Some religious communities, like Amish and Mennonite sects, avoid using electronic systems as part of their religious beliefs. Victims of domestic violence may be unwilling to share their bank information with the IRS due to safety, control or privacy concerns, and in some instances, abusers track victims' financial transactions, including deposits, which may further endanger the victim. And some individuals with disabilities —  like cognitive disabilities, sensory impairments or mobility impairments — face practical and systemic barriers to electronic transfers.  

In order to create equity in the implementation of the order, Collins noted that external stakeholders propose:

• Creating qualified exceptions for the unbanked and for taxpayers with religious objections;
• Expanding access to no-fee or low-barrier financial services;
• Providing dedicated resources to Americans living abroad; and,
• Offering secure, limited-use debit cards issued directly by the Treasury Department.

"The move away from paper checks aligns with the broader goal of building a more efficient, secure, and modern tax administration system," Collins concluded. "This is for the good, but progress should not come at the expense of the most vulnerable among us. ... As the IRS implements this directive, it must ensure no taxpayer is left behind. Exceptions must be accessible, clearly communicated, and fairly administered. Otherwise, while the IRS makes the tax system more efficient for some, it will simultaneously make it less accessible for others."