September 16, 2021

IRS direct deposit? How to tell if it’s a tax refund or credit.

While the IRS is scrambling to distribute various types of payments to millions of taxpayers, deposits are showing up unexpectedly in millions of people’s bank accounts.

Many people were surprised to wake up to an additional tax refund on Wednesday, after the IRS corrected their 2020 returns and determined—due to changes in the tax law that allowed people to claim up to $10,400 in non-taxable unemployment benefits—that they overpaid on unemployment compensation. The IRS is sending hard-copy notices to people who are owed refunds, the money often shows up by direct deposit before the letter arrives—leaving many recipients pleasantly surprised, albeit a little suspicious.

It’s been a similar situation with the monthly advance payments for the child tax credits. No matter how many tweets and press releases the IRS sends out to inform people of the pay schedule, social media still buzzes with shocked recipients each time a payment is made.

The Taxpayer Advocate Service (TAS) put out an update that breaks down the reference codes for three types of payments. These are the codes that appear in your bank account along with the funds. Each code starts with “IRS TREAS 310,” but then the code descriptions differ depending on the payment type. They are as follows:

  • TAX REF: This is what shows up if your deposit is a refund, including the refunds that are now being distributed to unemployment recipients with corrected returns.
  • TAXEIP3: This is the code that shows up for the third stimulus check, also known as Economic Impact Payments. Most, but not all, of those payments have been delivered.
  • CHILDCTC: This is what shows up if you receive an advance payment for the child tax credit. Those are being distributed monthly through the end of the year.

The IRS is still processing some 2020 Individual tax returns and amended tax returns, on top of continuing to issue the third round of Economic Impact Payments (EIP3), all while also starting a new program to provide Advance Payment of the Child Tax Credit (AdvCTC) this year. All those various payments coming to eligible taxpayers can get confusing, especially since the notices with explanations that are issued based on those actions might not come right away in the mail.

Be aware that some of these refunds might come within days or weeks of each other. For instance, once a 2020 tax return gets processed, the IRS has the information it needs to be able to then generate the EIP3 (provided you qualify). That same tax information also alerts the IRS to issue the AdvCTC, if you qualify. If this happens, the IRS will automatically register you to begin receiving those monthly payments through the end of the year.

Returning a Refund, EIP, or AdvCTC

If for some reason, you believe you are not due a refund, or do not qualify for either or both of the other two payments, you can repay that amount. See the article titled Returning a Refund, Economic Impact Payment, or Advance Payment of the Child Tax Credit for full details.