The IRS confirmed it would begin its transition to electronic payments September 30, starting with individual tax refunds. While some are concerned, others welcome the development. (IR 2025-94, 9/23/2025)
Treasury Secretary Scott Bessent is expected to elaborate on the move and address transition challenges during a Financial Literacy and Education Commission meeting scheduled for September 24, at 10 a.m. ET.
The announcement came after Executive Order 14247, Modernizing Payments To and From America’s Bank Account, issued in March, called for a phase out of paper checks for federal disbursements and receipts. The executive order specifically directs Treasury to “cease issuing paper checks for all Federal disbursements inclusive of … tax refunds” by September 30, 2025.
Individual Refunds Transitioning First
The IRS, on Tuesday, shared that it would start by phasing out paper tax refunds for individual taxpayers at the end of September. The agency refers to the phase-out as “the first step of a broader transition to electronic payments.”
The IRS emphasized that only 7% of individual taxpayers received a refund by mail in the 2025 filing season. However, according to the agency’s numbers, that means some 6.5 million individual taxpayers received a paper check refund last season.
Under the executive order, Treasury may provide “limited exceptions” to the electronic payment requirements, including for individuals without access to banking services and “where electronic disbursement would cause undue hardship.”
Tuesday’s notice confirms that “limited exceptions will be available” to the paperless refund policy. But the IRS encourages taxpayers who are unbanked to consider opening a free or low-cost account. Alternatively, these taxpayers may obtain their refunds via a prepaid debit card or digital wallet, says the agency. (See here for current IRS guidance on ways to get a refund.)
Notably, the executive order takes a more measured approach for payments made to the federal government, calling for a transition to electronic payments “[a]s soon as practicable.” Accordingly, IR 2025-94 instructs taxpayers to “continue to use existing payment options until further notice,” while promising additional guidance “prior to the 2026 filing season.”
Refund Access Concerns
Following the March executive order and related May request for information, Treasury received nearly 250 comments. Many commenters – including the American Institute of CPAs – expressed concerns with the tight deadline for transition and the treatment of erroneous payments. (More here.)
With the deadline looming, the American Bar Association’s Tax Section wrote Treasury Secretary Scott Bessent on September 2 warning of the unintended consequences of the quick transition – particularly for certain taxpayer groups.
In its letter, the ABA raises concerns about impacts on un- and underbanked individuals. It urges Treasury to take steps to expand access to basic bank accounts and educate the public on the risks of prepaid cards, if those are to be used for tax refunds. And it suggests IRS expand its customer service by adding “a separate, dedicated unit to address lost, stolen, or misdirected refunds.”
The Tax Law Center’s Kathleen Bryant also expresses concerns about the use of prepaid cards for refunds, noting this will “require careful implementation.” In particular, Bryant cautions that while other payments issued via prepaid cards – like Social Security and VA benefits – are monthly, tax refunds are paid annually. Thus, she adds, the IRS may need to reissue prepaid cards each year, and “doing so could cost as much or more than issuing paper checks.”
Alternatives to prepaid cards, like “nonbank financial technology products or cryptocurrency” might be “cheaper,” adds Bryant, but “they pose larger risks to consumers.”
In addition, the ABA notes that taxpayers abroad may be unable to claim refunds under the new policy. The reason, it explains, is that the IRS “does not permit direct deposit of refunds into foreign bank accounts” – and that prohibition extends to accounts at a foreign branch of a U.S. bank. The ABA suggests the IRS continue issuing paper checks to these taxpayers in the short term, and “consider changing its policy and allow direct deposit of tax refunds into foreign financial institutions through International ACH or wire transfer where feasible.”
The ABA, however, says it ultimately supports the executive order’s goal. It does recommend Treasury and the IRS “educate taxpayers about electronic payment options and increase taxpayer participation in electronic payment options.” That includes issuing regulations on options for electronic tax refund payments and how taxpayers can select among these options.
Bryant, too acknowledges that “[t]ransitioning more taxpayers to safe and accessible electronic payment options is a sound tax administration goal in the long run.” But she views the September 30 deadline as too soon to allow the IRS to develop a well-thought-out implementation plan.
A Welcome Change?
Others, however, view the transition to paperless disbursements as a change that was a long time coming. “Ending paper checks for federal disbursements will enhance the speed, safety and reliability of federal payments,” Michael Herd, Executive Vice President of ACH Network Administration at Nacha, told Checkpoint. “Recipients will receive their benefits faster, and with no risk of checks being stolen or lost in the mail,” he added.
Herd explains in a recent post that the federal government has actually had some form of an electronic payment mandate since 1999 – EFT 99. That came after the 1996 Debt Collection Improvement Act (P.L. 104-134) required that federal payments be made electronically, except tax refunds.
The impacts of EFT 99 were diminished, says Herd, because ultimately, recipients of federal payments were “permitted ‘self-certifying’ hardship exemptions.” Even so, according to Herd, by 2023, 96% of federal disbursements were made electronically.
The move to electronic payments was driven by several factors, Herd explains. That includes the advent of the prepaid card program for federal benefit recipients, Direct Express®. He also cites the BankOn program, which he says increased access to low- and no-cost bank accounts.
On how the latest shift might impact un- and underbanked individuals claiming tax refunds, Herd told Checkpoint that “given the widespread availability of online and mobile banking, digital payment apps, the Direct Express® card alternative, and BankOn-certified low-cost bank accounts at institutions all across the country, it’s so much easier to receive a payment electronically in 2025 than it was in 1999 when the original electronic payment mandate would otherwise have gone into effect.”
And he stressed that under the executive order, “individuals that can demonstrate a true hardship can still appeal to the U.S. Treasury.”
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