Important IRS Update: Direct Deposit Requirement & Refund Compliance

Important IRS Update: Direct Deposit Requirement & Refund Compliance

Published On: January 5, 2026Categories: PayrollTags:

Staying compliant with IRS payroll regulations is critical for avoiding delays, penalties, and unnecessary complications. The IRS has announced important changes that will impact how payroll-related refunds are issued, along with reminders about proper handling of refunds received in error. Below is what employers need to know and how we’ll help you stay compliant.

New IRS Direct Deposit Requirement for Payroll Refunds

Beginning with 2025 federal annual payroll forms, and continuing with Form 941 filings starting in the 1st Quarter of 2026, the IRS will require direct deposit (banking) information to be included on federal payroll filings in order for any refunds to be issued.

This means paper checks will no longer be an option for payroll-related refunds. If valid banking information is not provided on the filing, refunds may be delayed or not issued at all.

What this means for you:

  • Banking information must be accurate and up to date on federal payroll filings.
  • Refunds will only be issued via direct deposit.
  • Missing or incorrect information may cause processing delays.

We will be working closely with you to ensure this information is properly collected, verified, and reported so your filings remain accurate and compliant.

For more details on IRS refund and payment processes, visit the IRS website: https://www.irs.gov/payments

Refund Verification & Erroneous Refunds: What You Need to Know

From time to time, the IRS may issue a refund in error. In many cases, these refunds are sent directly to clients, and payroll providers are not automatically notified. To ensure compliance with IRS regulations, we ask that you take the following steps if you receive an IRS payroll-related refund:

If you receive a refund:

  • Notify us promptly so we can review it with you.
  • Confirm the validity of the refund before using the funds.
  • Return any refund that is determined to be invalid or issued in error.

The IRS requires taxpayers to return erroneous refunds. Failure to do so may result in penalties, interest, or additional enforcement actions.

For official IRS guidance on erroneous refunds, please review: https://www.irs.gov/taxtopics/tc161

We’re Here to Help

Staying proactive now can help avoid issues later, helps ensure accurate payroll reporting, and ongoing compliance with IRS requirements. If you have questions about the new direct deposit requirement, receive a refund you weren’t expecting, or are unsure about the validity of a refund, please contact us. Our team is here to guide you every step of the way.

Let’s Talk. Our dedicated payroll professionals provide expert support in payroll, workforce management, human resources, benefits administration, and retirement planning services.

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Learn more about how we can help you achieve your goals, address challenges, and resolve issues with speed and precision by conveniently scheduling an appointment with our team. And to speak directly with an experienced payroll professional, please contact us at 704.632.2940 or simply Click Here and Let’s Talk.

* MPAY LLC dba Payentry (Company), is not a law firm. This article is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other Company materials does not create an attorney-client relationship. The Company is not responsible for any inadvertent errors that may occur in the publishing process.