What Happens if Your Bank Rejected Tax Refund?

Direct deposit is the fastest way to get your tax refund but it can turn into a headache if the IRS has the wrong information on file.

MyBankTracker breaks down what to do if your refund has gotten lost in the shuffle because of a direct deposit error.

April 15th is right around the corner and if your tax refund is late in arriving, the problem could lie with your bank account.

Entering the wrong routing or account number could significantly delay your refund or prevent it from reaching you at all.

What happens to your refund when you make a mistake with your bank account information really depends on the kind of error involved, and there are a few different ways it can play out.

Quick answer: Contact the IRS immediately and/or the bank that received your tax refund. If everything gets sorted out smoothly, you should expect a paper check in the mail instead of a direct deposit of your tax refund.

Consequences of entering the wrong direct deposit information

Once you submit your return with a refund due, the IRS will perform a validation check on the bank information you provide.

This just verifies that the numbers are complete, not whether they're accurate.

If you leave a number off, either on your account or routing number, you'd fail the validation check. In that scenario, the IRS would send you a paper check instead, which can take anywhere from six to eight weeks to be delivered.

If you enter the right amount of numbers but the digits themselves are incorrect, getting your refund back may be a little trickier.

Because you'd still be able to pass the validation check, the IRS would give the green light to release your refund to the bank. At this point, it would be up to the bank to decide what to do with the money.

The bank has the option of rejecting the deposit or accepting it. If it's rejected because the account information doesn't match the name on the check, it'll bounce back to the IRS.

Once the payment is returned, a paper check will be issued in its place. If the deposit is accepted, your refund will be deposited into whatever account is listed on your return.

Tip:  If a paper check is issued, it'll be sent to the last address the IRS has on file. If you've moved since filing your taxes, you'll need to fill out a change of address with the Post Office to make sure it's forwarded properly.

Check your refund status

The IRS Where's My Refund? tool updates the status of your return every 24 hours and it allows you to track your refund prior to once your return is received.

If your return hasn't posted to the processing system yet, you can ask the IRS to stop your direct deposit by calling 1-800-829-1040.

Keep in mind that you won't be able to change the information you've already entered so you'll have to get a paper check.

[Related: 12 Reasons You Haven't Received Your Tax Return]

When your status shows up as "Refund Approved," it will also tell you the date the deposit was sent out.

If it's past the delivery date and the money hasn't hit your account, you'll need to take it up with the bank.

How banks handle direct deposit refund errors

Once a refund is issued, the IRS no longer assumes responsibility for it and it's between you and the bank to resolve the situation.

If you've notified the bank that your refund was deposited in the wrong account, they're responsible for investigating and verifying where the money went. They won't, however, give you the name of the person who received your refund due to privacy restrictions.

The bank also won't just pull the money out of the other person's account and deposit it in yours, even if you're able to prove that it belongs to you.

Instead, you'll have to file Form 3911, Taxpayer Statement Regarding Refund with the IRS to initiate a trace of your refund.

This form also gives the IRS authority to request a credit reversal from your bank. As long as the funds are available, the bank should have no trouble sending the money back and you can expect a paper check in the mail.

It's important to keep in mind, however, that banks aren't legally required to honor a reversal request.

Tip: You'll need to contact your state tax agency to find out what remedies are available for correcting direct deposit errors.

What else can you do to get your refund back?

If the bank refuses to release your refund, you may have to take the issue to court to get it settled. Specifically, you'd have to subpoena the bank to release the name of the person who owns the account that your refund was sent to.

Once you get that information, you could sue them directly to recover the money.

When a lawsuit seems likely, you'll need to have detailed documentation of all your communications with the IRS and the bank concerning the error.

This includes copies of your return showing the direct deposit information, a copy of Form 3911 and anything you receive from the bank regarding the deposit.

The more evidence you have to show that the money was deposited in error, the better the odds of being able to win your case.