MANHATTAN, Kan. – Once again, this year the Internal Revenue Service (IRS) is making it easier for taxpayers using 1040 forms to save by dividing their refund for direct deposit into more than one account.
If, for example, a taxpayer is entitled to a $1,500 federal income tax refund, he or she can designate $500 for direct deposit into a checking account and $1,000 for direct deposit into a savings or emergency fund or retirement account, said Carol Young, Kansas State University Research and Extension financial management specialist.
Filing electronically and opting for direct deposit typically gives taxpayers faster access to refund dollars, and dividing a refund between accounts need not be complicated, Young said.
Taxpayers are encouraged to complete 2010 Form 8888, "Allocation of Refund (Including Savings Bond Purchases)" by providing account and routing numbers with instructions on the amounts to be deposited in each account, and submit it with their tax return.
Accuracy is important, said Young, who advised double checking your account numbers before submitting the form.
Designating at least some, if not all, refund dollars for savings or an emergency fund is recommended, the financial management specialist said.
"Saving regularly is the key to financial security," said Young, who also recommended building an emergency fund with an initial goal of $500, with a long-term goal equivalent to several months of living expenses -- or more.
While a large refund may seem like a windfall, it also is an indication that a taxpayer has overpaid his or her tax liability and, in essence, provided a tax-free loan to the government, said Young, who encouraged taxpayers to check with employer's human resources department to adjust withholding to match the expected tax liability.
"Doing so can increase take home pay through the year and seem like you received a raise. That's not the case, however, and shouldn't be considered an invitation to over spend," said Young, who advises regular direct deposits into savings, retirement and other accounts, which she said is part of the ‘pay yourself first’ philosophy for building a more secure future.
More financial management, saving and spending tips are available at K-State Research and Extension offices and online.
K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well-being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus, Manhattan.
Story by: Nancy Petersonnancyp@ksu.eduK-State Research & Extension News
Carol Young is at 785-532-5773