The IRS Will Now Freeze Your Refund If You Don't Use Direct Deposit

The IRS just changed how it handles tax refunds. If your client doesn't provide direct deposit information - or if the direct deposit bounces - the IRS will freeze the refund until they take action.

No more automatic paper checks. No more "we'll figure it out later." The refund just sits there until the taxpayer responds.

Here's what CPAs need to tell clients before they file.

What Changed

Starting this filing season (2026), the IRS introduced two new rules:

1. Returns filed without direct deposit information: The IRS will still process the return, but it will freeze the refund. Taxpayers get a CP53E notice telling them to either provide bank account info or request a paper check waiver. They have 30 days to respond. If they don't? Paper check arrives after six weeks.

2. Rejected direct deposits: The IRS will freeze most rejected direct deposits instead of automatically reissuing them as paper checks. Same process: taxpayer gets a CP53E notice, has 30 days to fix the bank info or request a paper check.

This is part of the IRS's push to "modernize payments to and from America's bank account." Translation: the agency wants everyone on direct deposit and is willing to delay refunds to force the issue.

Who's Affected

Most taxpayers claiming refunds on Form 1040. The IRS carved out exceptions for:

• International taxpayers

• Minors

• Prisoners

• Taxpayers with religious exceptions

• Decedent taxpayers

Everyone else? Subject to the new rules.

The CP53E Notice

When the IRS freezes a refund, it sends a CP53E notice. The notice tells the taxpayer to:

• Log into their IRS Online Account

• Add or update direct deposit information, OR

• Request a paper check waiver

Important detail: the CP53E notice is only issued once. If a second direct deposit is rejected, the taxpayer doesn't get another shot at updating bank info. They'll have to call the IRS directly (good luck with that).

The notice includes a toll-free info line (866-325-4066) that provides recorded explanations. It's information-only - no live reps, no ability to enter bank details. To actually change refund delivery to a paper check, taxpayers without an online account need to call the main IRS line (800-829-1040) and speak to a customer service rep.

What This Means for Your Clients

If you have clients who:

• Prefer paper checks (older clients, unbanked taxpayers, people with frozen bank accounts)

• Haven't updated bank info after switching banks

• Tend to typo routing or account numbers

...they need to know this policy exists BEFORE they file. Because once the refund is frozen, the clock starts ticking.

How to Avoid Delays

Tell clients to:

1. Double-check bank account info before filing. Routing number, account number, account type (checking vs. savings). One typo = frozen refund.

2. Use direct deposit whenever possible. The IRS is making it clear this is the preferred method. Fighting it will only slow things down.

3. Set up an IRS Online Account now. If the refund gets frozen, taxpayers will need online access to respond quickly. Better to set it up before there's a problem.

4. If they legitimately can't do direct deposit, they should request a paper check waiver through their online account before filing - not after the refund is already frozen.

Why This Matters

This isn't just bureaucratic red tape. The IRS is actively phasing out paper checks. The Taxpayer Advocate Service warned last year that vulnerable taxpayers (elderly, unbanked, rural communities) risk being left behind in the rush to digitize payments.

For CPAs, this is another procedural landmine in an already chaotic filing season. Your clients expect their refunds to arrive smoothly. The IRS just added a new failure point - and the burden of fixing it falls on the taxpayer.

Make sure they know what's coming before they hit submit.