- Tax season has arrived, meaning checks will be going to and from the IRS
- Many file electronically, but a huge amount of refunds go out via paper check
- Personal checks are also mailed to the IRS and therefor become vulnerable
Tax filing season is upon us, and that means -- after a bit of frustration and receipt-hunting -- millions of Americans will be filing to receive refunds. In 2021 (the latest data available from IRS), 600.1 million refunds were issued at a total of $1.1 trillion value.
That's "trillion" with a "t." And, while many file their taxes electronically and receive refunds by direct deposit, two out of ten taxpayers still get their refunds in the form of paper checks via mail. The math is staggering: 20% of 600 million = 120M in checks.
That's not even taking into account the checks in the mail written by taxpayers who owe money to the government, or small-to-medium size businesses who need to pay their taxes as well.
These numbers are just for the federal government. Each state has their own tax laws and codes that will generate millions of refund checks -- or tax bills -- as well. While the total number for all states combined is difficult to calculate, we can confidently say that over the next 3-4 months, hundreds of millions of government refund checks will be issued and deposited.
That's not even taking into account the checks in the mail written by taxpayers who owe money to the government, or the small-to-medium sized businesses that need to pay their taxes as well.
Refund Scams and Stolen Checks
We would be remiss to not bring attention to the inevitability of fraud during tax season. Refund scams can include thieves stealing records from professional tax preparers, then sending out fraudulent checks, as well as interception of government refund checks that are then deposited into newly-created accounts.
As we've reported in earlier posts, private mailboxes and even street corner Post Office mail receptacles are not safe from theft. This means that opportunistic fraudsters will be taking advantage of increased check volume as tax payments and refunds enter the mail stream. Check out our recent post on the Modernizing Check Fraud Detection blog for details on check fraud schemes during this tax season.
During this period of "dense check traffic," image forensic AI technologies are more important than ever to detect altered federal and state refund checks.
Optimizing the Process
While a majority of tax refund checks -- both federal and state -- are deposited via direct deposit, the 120M federal paper refund checks issued -- plus the countless numbers of state-issued paper refund checks AND the checks written to federal and state entities -- represent a massive influx of checks into the payment ecosystem.
This is where banks who have deployed AI and machine learning technologies to read and extract data from checks, specifically federal and state refund checks, see the major benefits of straight-through processing. With the static nature of check stock -- along with the machine printing utilized -- banks are enjoying accuracy and read rates of over 99.5%, essentially eliminating any need for manual intervention. This data can be transferred to other analytics-based systems to monitor any fraudulent payments.