The IRS Explains Why My Refund Was Less Than Expected

I am brutally honest with my taxes, so I was surprised when the IRS gave me a refund that was $210 less than I expected. I assumed that either I forgot to file a form or I wasn’t given credit for a deduction I deserved. Secretly, I was hoping that there was simply a math error, but I was fairly certain that the IRS wasn’t taking money out of my refund for no reason.

I don’t believe in cheating on your taxes, it costs over $300 billion a year. But I was really curious about this missing $210, so after more than 2 months without any communication from the IRS, I finally called them to find out what was going on with my refund.

Why I Didn’t Receive A Letter

The reason I didn’t receive any communication from the IRS after filing in late March was that the missing $210 actually had nothing to do with my 2013 tax return but was actually being withheld because of an issue with my estimated tax payment in April 2012. Since this wasn’t about my 2013, they didn’t inform me after filing my 2013 taxes.

Self-employed individuals must pay taxes 4 times a year on income earned in the previous payment period. Because of an issue with my April 2012 payment, the IRS likely tried to contact me then. However, I changed my address in March 2012. And while the IRS sent me a letter, I was not at the old address to receive it and they hadn’t processed my change of address yet. Finally, the USPS does not forward some IRS mail because of it’s secure contents so the letter never reached me.

Why I Owed The IRS $210

In April 2012, I estimated that I owed taxes of $10,500. The first quarter of 2012 was great for my side business, but it wasn’t quite as great as that large number makes it seem. $10,500 may sound like a lot for a 3 month tax payment, but keep in mind a few things:

  • I was still single at the time, so the threshold in each tax bracket was lower compared to where it is for me now that I’m married.
  • I was responsible for paying not just my federal tax, but I had to include the self-employment tax (Social Security and Medicare Taxes) since I was my own employer. In 2012, that meant an additional 13.3% of my income
  • I had already changed my withholding at work, so I added in some extra to cover what my employer was not withholding for me.

The issue with my payment was that I did not put enough in my checking account in time to cover the large payment. I don’t know why I forgot about it, but I likely scheduled the payment a few days in advance and got distracted before filling my checking account instead of leaving the funds in my savings account.

So, I was charged a fee for insufficient funds.

2% Fee For Dishonored Payments

Once I found out what the issue was, I was told that there is a 2% fee for payments that have insufficient funds. This can be either a bounced check or an electronic payment.

Well, once I knew there was a 2% fee, it was easy to figure out where the $210 came from: $10,500 x 0.02 = $210.

So for all of 2012, the IRS showed that I owed them $210 and it wasn’t until I filed my 2012 taxes in March 2013 that they had the opportunity to get the funds from me. So they took my $2,955 refund, subtracted $210, and deposited $2,745 via direct deposit.

Why and How I’m Going To Fight This

There’s no doubt that the payment did not go through and that 2% of $10,500 is $210, so I understand exactly why the IRS thinks I owed them that money.

However, I don’t think it was reasonable for me to know about this fee. Yes, I need to know about the estimated tax payments that are due, and when I do all the research, I find out that I can pay taxes by electronic funds withdrawal. And while looking at that document, there is a mention of what happens when there is an error.

If a payment is returned by your financial institution (e.g., due to insufficient funds, incorrect account information, closed account, etc.) the IRS will mail a notification letter to the address we have on file for you, explaining why the payment could not be processed, and providing alternate payment options. For questions regarding the letter, please call 1-888-353-4537.

Forget the fact that I never received a letter, but there is no mention of any fees that will be charged for insufficient funds. I plan on writing in to the IRS and hopefully someone there will agree with me. I don’t expect them to and I take full responsibility for my mistake, but it never hurts to ask, right?

11 Responses to The IRS Explains Why My Refund Was Less Than Expected

  1. It can never hurt to try, but with the IRS it’s an uphill battle.

  2. Let us know how it goes. As Sean indicated, it doesn’t seem like the tide is on your side given who you’re dealing with, but the conversation will be interesting nonetheless, I would expect.

    • @Money Beagle, I agree and I’m also interested to see how the IRS works. Will they respond, will they even entertain the idea? Is it my responsibility to read the entire tax code or if there is missing information on one document, will that help me?

  3. Thomas @ Your Daily Finance says:

    You are better then me for 210$ and the IRS I would just let it go. They can be such a pain at times I am not sure the money would be worth my time. Let us know how things are panning out with this.

    • @Thomas @ Your Daily Finance, Yah I figure I write one letter and send it in and not worry too much about it. I don’t have high hopes, but 5 minutes of my time might be worth it, even if it’s just a 5% chance that I even get a response.

  4. Jake Erickson says:

    Arguing with the IRS can be such a pain. Luckily, I haven’t had a problem with any of my tax returns yet, but I assume it’s just a matter of time.

  5. Daniel Cohen @ Bills.com says:

    I am not sure that the fact that you did not receive timely notice will protect you from the 2% charge.

    On the IRS page for “Topic 206 – Dishonored Payments,” (http://www.irs.gov/taxtopics/tc206.html) there is an explanation of the 2% penalty. It also states that you can “request penalty abatement by providing a reason why the payment was dishonored. This request must be made in writing and should only be done after you have received notification of a penalty assessment.”

  6. Mike@WeOnlyDoThisOnce says:

    Same exact thing happened to me this past year, although I didn’t end up calling them so it’s just a guess since I had a similar missing refund amount. Thanks for following up!

  7. It can’t hurt to see if they will work with you, but it is the IRS. Just hope they don’t start digging around more into your finances. That will definitely not be worth the $210.

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