Direct deposit is a popular and convenient option, but you may be wondering, how does it work? For direct deposit, employers require the recipient’s bank account information or a void check to begin making deposits. Direct deposit is most commonly used to transfer an employee’s salary; however, it can also be used for things like taxes devolution, investment Dividends, Retirement account government payments and benefits like Social Security or unemployment payments.
Companies send your payroll information to financial institutions and it is then shared with the Automated Clearing House (ACH). This all happens a couple of days before payday, so ACH has time to sort and send the information to each employee’s bank. Once the money is transferred from your business to your bank, you see it in your account.
Notes on direct deposit for federal benefits (tax credits and refunds)
From federal law requires Since benefit payments are made electronically, direct deposit is the fastest and most secure option to receive your funds. Taxpayers have the option of receiving their tax refunds by physical check or by direct deposit. However, according to IRS“8 out of 10 taxpayers get their refunds through direct deposit.”
Government refunds and stimulus checks are usually sent immediately to the beneficiary when they sign up for direct deposit. Wondering if you are eligible to receive your funds this way? As a citizen, you are eligible for direct deposit if you have government benefit payments in your favor and if you have an open and active bank account with a financial institution.
Individuals with children who are eligible for the monthly payment Child Tax Credit for 2021 you can also take advantage of direct deposit. The IRS actually strongly recommends using direct deposit to get these payments faster each month.
The IRS has also improved the Child Tax Credit Update Portal to allow families to update their bank account information online so they can receive their monthly Child Tax Credit payment on time. If you don’t sign up for direct deposit to receive these funds, you will have a longer waiting period between when payments are made and being able to use the money, since you will then receive a check in the mail.