On January 27, 2026, U.S. Internal Revenue Service (“IRS”) issued frequently asked questions (FAQs) in Fact Sheet 2026-02 (the “Fact Sheet”). The purpose of these FAQs is to provide guidance to taxpayers for the 2026 tax season as the IRS transitions away from paper refund checks as part of its broader “modernized payments” initiative.1
WHY THIS MATTERS
Many global mobility programs and assignees rely on paper refund checks due to cross-border banking constraints (e.g., lack of U.S. bank access, routing issues with foreign banks, address changes, payroll/tax equalization administration). Under the IRS’s new process, refunds may be delayed if taxpayers fail to take certain actions, and the IRS may no longer automatically “fall back” to mailing a paper check when a direct deposit cannot be implemented.
Additionally, many programs and relocation management companies rely on paper checks to make payments on behalf of assignees, as paper checks allow for bulk payment submission and payment documentation. Until further notice, the IRS will continue to accept paper checks as payment.
New Process for Refunds Starting 2026
Tax Refunds
The Fact Sheet provides that, while direct deposit will be the primary method for issuing refunds, alternative electronic payment methods and limited exceptions to paper check phase-out will be established for those taxpayers without access to traditional banking services.2 However—besides noting that if direct deposit information is not provided the IRS will send a CP53E notice to the taxpayer’s last known address, requesting either the missing information or an explanation as to why the information cannot be given—no further clarification related to the paper refund check exception is provided.3
On January 26, 2026, the Taxpayers Advocate Service (“TAS”), an independent organization within the IRS, published a new Tax Tips to guide taxpayers through the 2026 tax season with respect to paper refund checks.4 The TAS Tax Tips discusses the IRS’s new operational procedures in detail and indicates that the IRS will temporarily freeze the refund when direct deposit information is not provided on a tax return or a direct deposit is rejected by a financial institution.5 If a refund is temporarily frozen under the new process, the IRS will issue a CP53E notice, which directs the taxpayer to add the direct deposit information using IRS Online Account within 30 days.6 If no action is taken by the taxpayer, the IRS will issue a paper check after six weeks.6 Alternatively, taxpayers may use their IRS Online Account to request a paper check waiver or call the main IRS phone number (1-800-829-1040) to request a change of their refund to a paper check (if they are without access to a U.S. bank account or an IRS Online Account).7
Significantly, both the Fact Sheet and TAS Tax Tips provide that “international taxpayers” are not affected by the new refund process and may continue to use existing methods to make payments and receive refunds.8 However, the term “international taxpayers” is not defined in either piece of guidance; therefore, questions remain as to which taxpayers fall into this category. If cross-border assignees are considered “international taxpayers,” they would not be subject to the new refund process, and no notice would be issued. If a CP53E notice is issued in error, or is issued automatically to those taxpayers who fail to provide direct deposit information, taxpayers may request a refund check either through their IRS Online Account or by calling the IRS.
KPMG INSIGHTS
As discussed in previous GMS Flash Alerts–2025-062, “Executive Order to Cease Paper Checks for Tax Refunds and Payments,” and 2025-175, “IRS to Phase Out Paper Tax Refund Checks”–elimination of paper refund checks presents a problematic issue for global mobility programs. The additional IRS guidance is welcome but administrators of these programs would benefit from further clarification.9
Beginning with the 2026 filing season (for 2025 income tax returns), taxpayers who previously requested a paper refund check using Form 8888, Allocation of Refund, can no longer do so because it is no longer listed on the form as an option.10 The elimination of the paper check option on the form, coupled with the lack of clarity around the term “international taxpayers,” may complicate the refund process for cross-border taxpayers without access to a U.S. bank account.
In addition, the uncertainties around exempted taxpayers may not be resolved until the CP53E notices are issued. While the Fact Sheet and TAS Tax Tips, taken together, provide more insights than before, the transition to the new refund process may not be without problems for cross-border assignees and global mobility programs given that the 2026 filing season is the first year of implementation.
Thus, to prepare for the 2026 filing season and beyond, global mobility programs may need to:
- revisit refund delivery assumptions in tax equalization policies and timelines;
- confirm assignees can access IRS Online Accounts; and
- incorporate CP53E-related response steps into filing season communications.
Payments to the IRS
The Fact Sheet encourages taxpayers to make payments using electronic options as the IRS will continue to reduce reliance on paper checks and money orders.11 With that said, the IRS will continue to accept existing payment options, including paper checks, until further notice.12
Additional Background
Modernizing Payments To and From America’s Bank Account
As discussed in GMS Flash Alerts 2025-062 and 2025-175, Executive Order 14247 mandates Treasury to cease issuing paper checks for disbursements from the federal government, such as tax refunds, by September 30, 2025.13 Additionally, the order mandates that all payments made to the federal government, such as tax payments, will be processed electronically “as soon as practicable, and to the extent permitted by law.” The executive order aims to transition all federal disbursements and receipts to digital formats, with certain exemptions. Exemptions are provided for individuals lacking banking access, emergency situations, and specific national security and law enforcement activities.
FOOTNOTES:
1 IRS, FS-2026-02, Jan. 27, 2026, Questions and answers about Executive Order 14247: Modernizing Payments To and From America’s Bank Account.
2 Ibid, Topic A, Q2A2.
3 Ibid, Topic A, Q5A5.
4 TAS, Tax Tips, Jan. 26, 2026, Direct Deposit Changes for 2026 Could Affect How and When You Get Your Refund - TAS.
5 Ibid.
6 Ibid.
7 Ibid.
8 IRS, FS-2026-02, Jan. 27, 2026, Questions and answers about Executive Order 14247: Modernizing Payments To and From America’s Bank Account, Topic D, Q1A1; TAS, Tax Tips, Jan. 26, 2026, Direct Deposit Changes for 2026 Could Affect How and When You Get Your Refund - TAS.
9 GMS Flash Alerts 2025-062, Executive Order to Cease Paper Checks for Tax Refunds and Payments, and 2025-175, IRS to Phase Out Paper Tax Refund Checks.
10 IRS Form 8888, Allocation of Refund, Form 8888 (Rev. December 2025).
11 IRS, FS-2026-02, Jan. 27, 2026, Questions and answers about Executive Order 14247: Modernizing Payments To and From America’s Bank Account, Topic B, Q1A1.
12 Ibid, Topic B, Q2A2.
13 GMS Flash Alerts 2025-062, Executive Order to Cease Paper Checks for Tax Refunds and Payments, and 2025-175, IRS to Phase Out Paper Tax Refund Checks.
Contacts
Disclaimer
The above information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.
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