President Donald Trump signed an executive order last week that authorizes the federal government to begin phasing out the use of paper checks and switch exclusively to electronic payments this fall, with some limited exceptions.
Effective Sept. 30, 2025, the Treasury secretary has been tasked with halting paper checks from being issued for all federal disbursements, including tax refunds, according to an analysis of the executive order by Ed Zollars, CPA, a partner in the Phoenix-based accounting firm Thomas, Zollars & Lynch. Similarly, the executive order requires that all payments to the federal government, including to the IRS for taxes owed, should be processed electronically.
This transition aims to reduce costs, delays, and the risks of fraud associated with paper checks, Zollars noted.
“The reliance on paper checks has historically led to a higher incidence of loss, theft, undeliverability, or alteration compared to electronic funds transfers (EFTs),” he wrote.
The move is part of the Trump administration’s crackdown on waste, fraud, and abuse in the federal government. Modernizing outdated paper-based payment systems reduces unnecessary costs, delays, and security risks, the administration said in a March 25 fact sheet on the executive order.
The fact sheet says:
- Paper-based payments, such as checks and money orders, impose unnecessary costs, delays, and risks of fraud, lost payments, theft, and inefficiencies.
- Mail theft complaints have increased substantially since 2020.
- Historically, Treasury checks are 16 times more likely to be reported lost or stolen, returned undeliverable, or altered than an electronic funds transfer.
- Maintaining the physical infrastructure and specialized technology for digitizing paper records cost the American taxpayer over $657 million in fiscal year 2024 alone.
- Check fraud is becoming more common, with banks issuing about 680,000 reports of check fraud in 2022 – nearly double the number from 2021.
- Digital payments are more efficient, less costly, and less vulnerable to fraud.
While the executive order strongly pushes for electronic transactions, it acknowledges that certain exceptions are necessary, Zollars noted. He wrote that these exceptions include situations for:
- Other circumstances as determined by the secretary of the Treasury: This broad category leaves room for future regulatory guidance that may be relevant to specific taxpayer situations.
- Individuals without access to banking services or electronic payment options: This is a crucial consideration for practitioners who represent clients who are unbanked or underbanked. Alternative payment options will need to be provided for these individuals.
- Certain emergency payments where electronic disbursement would cause undue hardship: While less directly related to routine tax matters, this could potentially affect disaster relief payments with tax implications.
- National security- or law enforcement-related activities where non-EFT transactions are necessary or desirable: This is unlikely to directly impact the majority of tax practices.
“This executive order signifies a significant shift in how the federal government processes payments, both incoming and outgoing, with a clear mandate to move towards electronic methods by September 30, 2025,” Zollars wrote. “For tax practitioners, this means preparing our clients for the near-complete elimination of paper checks for federal tax refunds and ensuring they have access to and understand electronic payment options for remitting taxes. While exceptions will exist, it is crucial for us to stay informed about the specific procedures and alternative payment methods that will be available for those who qualify. The emphasis on electronic transactions also underscores the ongoing importance of data security and the need to guide our clients in utilizing secure digital payment methods. We should anticipate further guidance from the Treasury and relevant agencies as the implementation progresses.”
The American Bankers Association said in a statement last Tuesday that it supported the president’s executive order.
“Despite a continued decline in business and consumer use of checks, check fraud has continued to rise. That is why ABA and banks across the country launched the #PracticeSafeChecks campaign last October to educate consumers, including encouraging them to use digital banking options to send money whenever possible. The bottom line: Electronic payments are a much faster, cheaper, and safer choice for consumers and the federal government,” ABA President and CEO Rob Nichols said. “We look forward to working with the administration to make sure consumers are ready for this transition, which will also provide another important opportunity to further reduce the number of unbanked in the country from the current record low of 4%.”
In an article posted on Monday, Kiplinger noted that the phase-out of paper checks could also impact Social Security recipients. The Treasury’s elimination of paper checks for Social Security payments will require those receiving benefits by check to transition to electronic payment methods, like direct deposit or prepaid debit cards. Data show that more than 450,000 individuals receive paper Social Security checks.
This change could pose challenges, particularly for those older adults who are less familiar with digital banking systems, Kiplinger noted. Vulnerable populations, including those without reliable internet access, may also face difficulties adapting to the new system. However, as mentioned, the order provides for a process to be developed to address cases of undue hardship.
With Tribune News Services
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Tags: Income Taxes, IRS, paper checks, Payroll, Social Security, tax refunds, Taxes
