Modernizing Payments to and from the US Government
On March 25, President Trump signed an Executive Order (EO) the purpose of which is to modernize how the government handles money by switching from old-fashioned paper-based payments to "fast, secure electronic payments".
The EO, which is effective September 30 of this year. Some of the major points of the EO include:
- The Order mandates that the Federal government will stop issuing paper checks for all disbursements, including intragovernmental payments, benefits (including Social Security), vendor payments, and tax refunds.
- All executive departments and agencies will transition to modern, electronic funds transfer (EFT) methods like direct deposit, debit/credit card payments, digital wallets, and real-time transfers.
- Treasury will phase out physical lockbox services and expedite electronic collection of Federal receipts.
- A comprehensive public awareness campaign will be launched to inform Federal payment recipients of the shift to electronic options and offer guidance on setting up digital payments.
- Exceptions will be made for people without banking or electronic payment access, certain emergency payments, certain law enforcement activities, and other special cases qualifying for an exception under the Order or other existing law.
- This Executive Order does not establish a Central Bank Digital Currency (CBDC).
A major and far-reaching aspect of the EO that affects almost every US taxpayer requires that payments made TO the Federal government, such as fees, fines, loans, and taxes, must also be processed electronically where permissible under existing law.
Did you catch that? That means no more tax payments made by writing a paper check. As a tax professional, I can attest to just how huge this is! The vast majority of my clients, I would say at least 90%, still pay their taxes by paper check, despite our efforts to introduce them to alternative ways that arguably are more convenient and secure. People are heavily resistant to paying taxes electronically and many are frankly scared of the technology.
So why the push that some would consider extreme to mandate such a thing. The reasons given include:
- 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, something to which I can personally attest.
- 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. Again, I can attest to this, having personally been a victim of check fraud.
- Digital payments are more efficient, less costly, and less vulnerable to fraud.
Recognizing that imposing these requirements could cause undo hardships for some, the EO directed the Treasury Department to review and revise procedures for granting limited exceptions where electronic payment and collection methods are not feasible, including exceptions for individuals who do not have access to banking services or electronic payment systems.
It remains to be seen how all of this plays out in reality. As with any change, there will be angst and there will be hiccups. As mentioned already, the President has directed that a comprehensive public awareness campaign begin immediately to inform the public and hopefully smooth the way.
