Transition Challenges Expected as Treasury Goes Paperless

Back in March, President Trump issued an executive order mandating that Treasury and the IRS largely transition to electronic payments, including for tax refunds, by September 30 — but tax professionals are concerned about timing and potential impacts on vulnerable taxpayers.

Executive Order 14247, Modernizing Payments to and From America’s Bank Account, calls for a phase out of Treasury Department paper checks, including for tax refunds, Social Security benefits, and vendor payments. Citing inefficiencies and the risk of fraud and theft, the March 25 EO directs Treasury and the IRS to cease issuing paper checks for federal disbursements by September 30.

The EO does allow for limited exceptions to that deadline, to be determined by the Treasury secretary. Individuals who lack access to banking services and electronic payment systems and those who would experience “undue hardship” are among those who may be excused from the requirement.

Treasury, in a May 30 request for information, sought public input on barriers to the transition to electronic payments, particularly for unbanked individuals and small businesses. The agency requested suggestions for increasing public awareness of the transition. It also sought input on appropriate electronic funds transfer methods — such as direct deposit, debit and credit card payments, prepaid card accounts, digital wallets, and real-time payment systems.

Treasury received nearly 250 comments in response to its request for information by the June 30 comment deadline. Among them were comments from the American Institute of CPAs (AICPA), the Texas Society of Certified Public Accountants (TXCPA), and several accounting firms and tax professionals.

Delay urged.

A top concern for AICPA and TXCPA is the speed at which the transition to electronic payments will take effect.

“The September 30 implementation date is particularly concerning because many taxpayers extended their 2024 federal income tax returns to October 15, 2025, and they will be directly impacted by the Order,” said AICPA. The group fears the tight deadline does not allow for the IRS “to adjust systems, to adopt practices implementing the rules and their exceptions, and to offer any meaningful public awareness.”

Beyond that, some taxpayers may want to allocate payments “toward liabilities that the online system does not allow,” says TXCPA. For example, the group notes, taxpayers may “choose to designate a payment toward a tax liability rather than penalties because they intend to dispute the penalty portion.”

The CPA groups also note that some taxpayers lack access to adequate internet services and technology to receive electronic payments.

AICPA requests an extended time frame for implementation, or “significant transitional relief.” The group also recommends Treasury and IRS issue guidance on how exceptions to electronic payments will be granted, with particular attention to those over age 65 as well as taxpayers who are unable or unwilling to open U.S. bank accounts.

Meanwhile, TXCPA is calling on Treasury to delay implementation of mandatory electronic payments until January 15, 2026. It further suggests paper checks still be made available for transactions of $10,000 or less through December 31, 2026.

Erroneous checks.

AICPA is also concerned about the treatment of erroneous and unexpected refund checks. “Practitioners customarily advise clients not to deposit such checks and to return them to the IRS,” writes AICPA. “With electronically deposited refunds, taxpayers lose the ability to return refunds sent in error.”

Commenters from Eide Bailly and Weinshel, Wynnick & Associates LLC also raised concerns about erroneous refunds received electronically. Both comments note that currently, it is possible to void and return erroneous checks issued by the IRS.

“If these erroneous refunds are made electronically, the taxpayer will unlikely be able to stop the issuance of the erroneous electronic refund to avoid interest or penalties if they return the funds at a later date,” writes Weinshel, Wynnick & Associates.

And for nonprofit organizations where the IRS incorrectly refunds an overpayment electronically, “the ability to void and return the check to the IRS with instruction on how to post it will be lost and the organization will end up subject to late payment penalties due to the IRS incorrectly refunding the overpayment or estimate,” writes Eide Bailly.

The CPA firms request Treasury address how taxpayers will be protected where erroneous payments are automatically deposited into their accounts via electronic means.