2026 Filing Season Alert: New IRS Guidance on Electronic Payments, the CP53E Notice, and What Changes Right Now for Businesses and Government Agencies

By the IntelliPay Compliance Team | 20+ Years Payment Processing Experience
Published: February 12, 2026 | Read time: ~7 minutes | Last updated: February 2026

Executive Summary

On January 27, 2026, the IRS released Fact Sheet FS-2026-02 and IR-2026-13 the most detailed guidance yet on how Executive Order 14247 will work in practice during the 2026 filing season. For the first time, businesses and individuals have specific answers on refund freezes, the new CP53E notice process, EFTPS sunset timelines, and Federal Tax Deposit penalty exposure.

This article focuses on what’s new in the January 2026 guidance—the operational details that were not available when the executive order was signed or when paper checks began phasing out last fall. For background on Executive Order 14247 itself and how it affects local government payment modernization, see our earlier coverage: How Will Executive Order 14247 Affect Local Government Payments?

If you file business tax returns, manage payroll deposits, or oversee government agency finances, the details below affect your operations this filing season.

What the January 2026 IRS Guidance Actually Says

The IRS has been signaling a shift to electronic payments since the executive order was signed in March 2025. But until January 27, 2026, many of the operational details were unclear. Fact Sheet FS-2026-02 fills those gaps with specific procedures, timelines, and consequences. Here are the key takeaways that matter for businesses and government agencies.

The CP53E Notice: A New Step in the Refund Process

The most significant procedural change for the 2026 filing season is the introduction of the CP53E notice. This is the mechanism the IRS will use when a tax return is filed without direct deposit information or when a financial institution rejects a direct deposit attempt.

Here is how the new process works:

• Step 1 – Return accepted: The tax return is processed normally regardless of whether banking information is included. Filing procedures have not changed.
• Step 2 – Refund freeze: If a refund is due and no valid direct deposit information is on file, the IRS temporarily freezes the refund. It is not rejected—it is held pending taxpayer action.
• Step 3 – CP53E notice mailed: The IRS sends a CP53E notice to the taxpayer’s last known address, requesting that banking information be provided within 30 days.
• Step 4 – Taxpayer responds online: The taxpayer must use their IRS Online Account (for individuals) or IRS Business Tax Account (for businesses) to provide direct deposit details. For security reasons, IRS employees cannot accept banking information by phone or in person.
• Step 5 – Refund released: Once banking information is provided, the refund is released via direct deposit. If no response is received within 30 days and no other issues exist, the IRS will issue a paper check after six weeks.

⚠️ Important for Business Owners

The CP53E notice is only issued once. If a direct deposit is rejected a second time by your financial institution, you will not receive another notice—the IRS will default to mailing a paper check. Double-check that your bank account number and routing number are accurate before filing.

Providing banking information is technically voluntary. But skipping it means a frozen refund, a mailed notice, a 30-day wait, and potentially six additional weeks before a paper check arrives. For businesses expecting refunds from overpayments, amended returns, or credits, this delay can be significant.

The EFTPS Sunset for Individuals: What It Means for Business Owners

Effective October 17, 2025, the IRS stopped accepting new individual enrollments in the Electronic Federal Tax Payment System (EFTPS). Individuals already enrolled can continue using it temporarily, but all individual EFTPS users will be required to transition to other electronic methods later in 2026. The IRS directs individuals to use IRS Direct Pay or IRS Online Accounts instead.

For businesses, EFTPS remains available—for now. Businesses may continue to use EFTPS for Federal Tax Deposits and other business tax payments. However, the broader direction is clear: the IRS is consolidating its electronic payment infrastructure. Business owners who rely on EFTPS should monitor IRS.gov for announcements about future changes, and should ensure they also have access to the IRS Business Tax Account and IRS Direct Pay for businesses as backup channels.

The EFTPS Batch Provider tool also remains available for third parties, including tax professionals who make multiple electronic payments on behalf of clients. The IRS has confirmed it will provide training resources, webinars, and outreach to third-party stakeholders during the transition.

Federal Tax Deposit Penalties: The One Rule That Has Not Changed

While much of the January guidance focuses on new procedures, one critical rule bears repeating because it is not new—but it is now being enforced more aggressively in the context of the broader electronic mandate.

Businesses cannot use cash or credit/debit card payments to make Federal Tax Deposits. FTDs—including payroll tax deposits, quarterly estimated tax payments, and corporate income tax deposits—must be made electronically through EFTPS, the IRS Business Tax Account, or IRS Direct Pay for businesses. Deposits not made electronically may be subject to penalty unless the business can establish reasonable cause.

For small businesses that handle payroll internally or through a basic accounting system, this is the most immediate compliance exposure. If your payroll provider submits FTDs on your behalf, confirm that they are doing so electronically. If you submit deposits yourself, verify that your method of payment qualifies.

The Downstream Effect: What Government Treasurers Should Watch

The January 2026 IRS guidance is federal, but its effects do not stop at the federal level. Government treasurers and finance directors at the state, county, and municipal level should pay attention to three specific developments.

Constituent Behavior Is Shifting Faster Than Expected

As the federal government makes electronic refund delivery the default for tens of millions of taxpayers, a new baseline is being established. Constituents who set up IRS Online Accounts, provide direct deposit details, and receive refunds electronically in under 21 days will carry those expectations into every other payment interaction—including property taxes, utility bills, court fees, and permit payments.

Government agencies that still require in-person visits, mailed checks, or limited online payment options will feel this gap acutely. The question is no longer whether to offer electronic payment channels; it is whether your current channels meet the speed and convenience that constituents now consider standard.

The Penny Discontinuance Adds a New Variable

In a development that intersects directly with local government cash handling, the federal government has stopped producing the penny. In January 2026, the Tennessee Comptroller of the Treasury issued formal guidance to help local governments adjust their payment processing practices. The guidance recommends several approaches:

• Encouraging exact change for cash transactions
• Offering electronic payment alternatives as the preferred option
• Crediting customer accounts for non-exact cash payments
• Adjusting rates or fees to five- or ten-cent increments where legally permitted
• Consulting legal counsel before implementing any policy changes
• Applying all policies uniformly and avoiding preferential treatment among payment types

Other states may issue similar guidance. For government finance offices, this is another operational reason to accelerate electronic payment availability. Every cash-handling policy change—rounding, crediting accounts, adjusting rates—carries legal, operational, and public communication overhead. Expanding electronic payment channels reduces exposure to these complexities.

Treasury’s ASAP System Is Ramping Up Training

The Treasury’s Automated Standard Application for Payments (ASAP) system—which handles electronic disbursements to state and local governments, educational institutions, tribal organizations, and nonprofits—is conducting multiple training sessions in February and March 2026. Topics include enrollment procedures, how to make payment requests, and what’s new in the ASAP.gov platform. Government agencies receiving federal grant funds should ensure their finance teams are enrolled and up to date on these changes.

2026 Filing Season Checklist

Based on the January 2026 guidance, here are the specific steps organizations should take before or during this filing season.

For Small Business Owners

• Verify your bank details on file with the IRS. Incorrect or outdated information will trigger a CP53E notice and delay your refund by a minimum of 30 days—potentially up to six additional weeks if you fail to respond.
• Confirm your FTD method is electronic. If you or your payroll provider submit Federal Tax Deposits by any non-electronic method, you risk penalties. Check that deposits go through EFTPS, IRS Direct Pay, or the IRS Business Tax Account.
• Set up an IRS Business Tax Account if you haven’t already. This is the IRS’s preferred portal for managing business payments, viewing balances, and responding to notices. Access it at irs.gov.
• Ask your tax preparer about EFTPS Batch Provider. If your CPA or payroll service makes deposits on your behalf, confirm they are using the EFTPS Batch Provider tool or an equivalent approved electronic method.
• Plan for faster refund delivery. Electronic refunds are typically issued in less than 21 days. If you provide valid banking information, your cash flow planning can be more precise this year.
• Know your one-shot rule. If a direct deposit is rejected by your bank, the IRS will issue one CP53E notice. A second rejection means an automatic paper check with no further opportunity to correct your banking details for that refund cycle.

For Government Treasurers and Finance Directors

• Review your agency’s federal banking details. Ensure that ACH and direct deposit information on file with federal disbursing agencies is current. Outdated information could delay grant funds and intergovernmental transfers under the new electronic-only default.
• Enroll your team in Treasury ASAP training. The Bureau of the Fiscal Service is running free webinars in February and March 2026 covering enrollment, payment requests, and platform updates. Sessions are available at fiscal.treasury.gov.
• Assess your cash-handling policies in light of the penny discontinuance. If your jurisdiction has not yet issued guidance, review Tennessee’s framework as a reference and consult your municipal counsel on adjustments to rates, rounding, and account crediting.
• Evaluate electronic payment channel coverage. Identify whether every major payment type your agency collects—property taxes, utility bills, permits, court fees, fines—can be paid electronically via online portal, mobile, IVR, kiosk, or text-to-pay.
• Communicate proactively with constituents. As residents set up IRS Online Accounts and grow accustomed to electronic refund delivery, they will expect the same from local government. Publish updated payment options on your website and in public notices.
• Review your fee-based payment model compliance. If your agency uses convenience fees, service fees, or surcharges to offset electronic payment processing costs, verify that your program complies with current Visa, Mastercard, and state regulations. Card brand rules are updated regularly.

Frequently Asked Questions

What is a CP53E notice?
A CP53E is a new IRS notice introduced for the 2026 filing season. It is sent when a tax refund cannot be delivered electronically—either because the taxpayer did not provide direct deposit information or because a financial institution rejected the deposit. The notice gives the taxpayer 30 days to provide or correct banking details through their IRS Online Account. If no action is taken, a paper check is mailed after six weeks.

Can I still use EFTPS for my business?
Yes. As of February 2026, businesses can continue to use EFTPS for Federal Tax Deposits and other business tax payments. However, new individual EFTPS enrollments ended on October 17, 2025, and all individual users will be required to transition to other methods later in 2026. Business owners should monitor IRS.gov for any future changes to business EFTPS access.

What happens if my bank rejects a direct deposit from the IRS?
The IRS will freeze the refund and send a CP53E notice to your last known address. You have 30 days to update your banking information through your IRS Online Account. If the updated deposit is also rejected, the IRS will default to issuing a paper check. You will not receive a second CP53E notice.

Does the penny discontinuance affect how my government office handles payments?
It can. The Tennessee Comptroller of the Treasury issued guidance in January 2026 recommending that local governments consider exact change policies, electronic payment alternatives, account crediting, and rate adjustments. Other states may follow. Expanding electronic payment options reduces the operational and legal complexity of adjusting cash-handling procedures.

Is the IRS still accepting paper checks for tax payments?
For general tax payments (balances due, penalties, fees), checks and money orders are still accepted during the transition period. However, Federal Tax Deposits must be made electronically. The IRS has indicated that acceptance of paper payments will continue to decrease, so transitioning to electronic methods now is strongly recommended.

How does this affect organizations that receive federal grant funds?
The executive order applies to federal disbursements, including grants. State and local government agencies, educational institutions, and nonprofit organizations should ensure their banking and ACH information is current with the relevant disbursing agencies. The Treasury’s ASAP system is conducting training sessions in early 2026 to help recipients prepare.

Where can I find the full IRS guidance?
Fact Sheet FS-2026-02 is available at irs.gov/pub/taxpros/fs-2026-02.pdf. The IRS news release IR-2026-13 is at irs.gov/newsroom. The Taxpayer Advocate Service has also published a summary of the CP53E process at taxpayeradvocate.irs.gov.

How IntelliPay Helps You Stay Ahead of the Electronic Payment Shift

Since 2004, IntelliPay has provided PCI DSS Level 1-certified, cloud-based payment processing to small businesses, government agencies, utilities, and organizations nationwide. As the federal government accelerates its move to electronic payments, the demand for flexible, multi-channel electronic payment acceptance is growing at every level.

IntelliPay’s platform supports credit and debit card, ACH/eCheck, and digital payment acceptance across online portals, in-person terminals, mobile, IVR, kiosk, text-to-pay, and recurring payment channels—all from a single vendor and platform. Our compliant fee-based models—including surcharge, convenience fee, service fee, and dual pricing—can offset or eliminate your net cost of processing on eligible transactions.

Whether you need to expand electronic payment options for your constituents, modernize your receivables infrastructure, or reduce your cost of card acceptance, our U.S.-based team works alongside every client to build a solution that fits.

Talk to an IntelliPay consultant: 855-872-6632 | sales@intellipay.com | intellipay.com

Sources

1. IRS. IR-2026-13: “IRS Issues Frequently Asked Questions About Executive Order 14247.” irs.gov, January 27, 2026.
2. IRS. Fact Sheet FS-2026-02: “Questions and Answers About Executive Order 14247: Modernizing Payments To and From America’s Bank Account.” irs.gov, January 27, 2026.
3. IRS. “Understanding Your CP53E Notice.” irs.gov, 2026.
4. Taxpayer Advocate Service. “Direct Deposit Changes for 2026 Could Affect How and When You Get Your Refund.” taxpayeradvocate.irs.gov, January 2026.
5. Tennessee Comptroller of the Treasury. “Comptroller Releases Guidance Following Penny Discontinuance.” comptroller.tn.gov, January 20, 2026.
6. Bureau of the Fiscal Service, U.S. Treasury. “Automated Standard Application for Payments (ASAP).” fiscal.treasury.gov, 2026.
7. Federal Reserve Financial Services. “Announcing 2026 Federal Reserve Financial Services Fees and Payment System Enhancements.” frbservices.org, December 16, 2025.

Disclaimer: This article is for informational and educational purposes only and does not constitute legal, financial, tax, or professional compliance advice. While every effort has been made to ensure accuracy as of February 2026, IRS guidance, federal regulations, and card brand rules are subject to change. Consult with a qualified tax professional, CPA, or legal counsel for advice specific to your organization. IntelliPay is a registered ISO/MSP of Citizens Bank, Providence, RI, and Synovus Bank, Columbus, GA.