Bank Products and Mobile Payment Apps
Bank Products and Peer-to-Peer Apps: What Tax Pros Need to Know
As tax season approaches, clients increasingly want fast, flexible options for receiving their tax refunds. While bank products remain a trusted method used by tax professionals for years, peer-to-peer (P2P) payment apps like Cash App®, Venmo®, and PayPal® are becoming more popular—especially among younger taxpayers. But which method is best? And what should tax professionals keep in mind when offering or advising on refund delivery options?
Let’s break down the differences between bank products and P2P apps in the context of tax preparation.
What Are Bank Products in Tax Preparation?
Bank products are financial services offered by tax preparers—via software partners like Drake Software—that allow clients to pay tax prep fees directly from their refund, often with additional refund delivery options such as:
- Direct Deposit
- Prepaid Debit Cards
- Paper Checks
These products are often backed by banks like EPS Financial, Refundo®, and TIGTA-compliant institutions. Drake Software integrates with several bank product providers to streamline this process.
Benefits of Bank Products:
Clients don’t pay upfront tax prep fees
Secure, IRS-compliant delivery of refunds
Transparent fee structure
Can offer multiple refund delivery options
Why It Matters:
Bank products give tax pros greater control over the process, ensure compliance with comprehensive policies, advanced technology safeguards, routine evaluations, and continuous staff education. Also, bank products can offer value-added services like audit protection or identity theft monitoring.
Peer-to-Peer Apps: A Growing Trend
Apps like Cash App, Venmo, and PayPal offer instant access to money, making them attractive options for refund deposits. Some P2P platforms even offer direct deposit routing numbers, which taxpayers can use to receive IRS refunds.
Pros:
Fast access to funds
Popular among Millennials and Gen Z
Easy-to-use mobile interfaces
Cons:
Not all P2P apps support IRS refunds reliably
Risk of routing/account errors
Lack of tax-specific support or compliance safeguards
Compliance Note:
As of recent IRS regulations, P2P platforms must issue Form 1099-K for payments over $600. This could lead to confusion for taxpayers who use these platforms both personally and for business-related income—especially if they receive refunds or stimulus payments via these apps.
IRS Direct Deposit Recommendations
The IRS recommends using direct deposit for the fastest and safest delivery of tax refunds. Taxpayers can split their refund into up to three accounts, but must ensure that the account information is accurate and valid—especially when using non-traditional platforms like P2P apps.
Pro Tip for Tax Pros: Always verify that the account and routing numbers provided by clients for direct deposit—whether for a bank or P2P app—are valid and capable of receiving IRS funds.
Final Thoughts for Tax Professionals
While peer-to-peer apps offer speed and convenience, they don’t yet match the security, compliance, and control provided by traditional bank products integrated into tax preparation software like Drake Software.
Recommendation: Offer bank products to clients as a default option, highlighting the security and fee-payment convenience. If a client insists on using a P2P app, educate them on potential risks and verify routing/account details with extra care.
For more information on Bank Products by Drake Software, please visit our bank products page.
Disclaimers:
This article is for informational purposes only and not legal or financial advice.
Drake Software, LLC ("Drake") receives fees from some third parties that provide offers to its customers. This compensation may affect what and how we communicate their services to you. Drake is not a party to any transactions you may choose to enter into with such third party(ies) and disclaims any liability arising out of such transactions. Please see such third-party site for their terms and conditions.
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