IRS Direct Debit NSF

[Randall]

Does anyone know if there are not enough funds to cover an IRS direct debit, does the withdrawal take out whatever balance is in the account or nothing at all since the exact amount to be withdrawn isn't available?

 

[jklcpa]

I've seen that IRS will try to w/d a payment on an installment agreement on the next scheduled date, but that is not what you asked.

Not sure if it would try to resubmit in the case you described, but pretty sure it wouldn't take a different amount than was authorized.  The IRS may eventually send Letter 608C Dishonored Check Penalty, but at this point I'm not even sure if this letter is one that the IRS included not sending in its recent effort to get caught up on the backlog and had recently stopped its computers from sending out repeated letters.  The way to know for sure is for the client to verify with his/her bank.

Sorry, not much help.

[Pacun]

It is all or nothing. We are talking computers here. 

Think about it: The computer says: Pay me $2,000 and the other computer says: "denied"... it might be nice enough to say "denied because of lack of funds". The bank will never say, I only have $1,250 on this account because it was not asked that... neither did the client authorize the IRS to inquire the bank about his balance.

[Lee B]

"The payment amount will be debited in a single transaction. No recurring or partial withdrawals will be made."

"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 Letter 4870 to the address we have on file for you, explaining why the payment could not be processed, and providing alternate payment options.

In the event your financial institution is unable to process your payment request, you will be responsible for making other payment arrangements, and for any penalties and interest incurred."

[TAXMAN]

I had this happen. TP had 2 savings accounts. Gave the one to get $ out of however it was the wrong one. IRS sent a letter very quickly. I guess they really need the $. BTW the penalty was $35.00

[KATHERINE]

I had one, the penalty is very high, it is based on % of total payment, even replaced payment right away before they sent letter.  Still don't know how to remove that penalty yet.  Any suggestion how to remove the penalty.   Thank you!

[Catherine]

1 hour ago, KATHERINE said:

Any suggestion how to remove the penalty.

Did you try first time penalty abatement? 

[jklcpa]

https://www.irs.gov/taxtopics/tc206

https://www.irs.gov/payments/dishonored-check-penalty

Must show reasonable cause and that the taxpayer had the expectation that the payment would have been honored.

[KATHERINE]

Thank you dear friends here.  I will do as suggested.  Thank you!

[Randall]

I posted this originally.  My client owed a lot of tax on the 2021 return (and Ky too).  He wanted a direct debit payment.  We set it up for Friday, April 15.  He transferred enough money to cover the payments.  IRS took their 2021 tax payment.  Ky waited until Monday, April 18.  Unfortunately I missed something on the return.  The ATX software automatically calculated 1040 ES payments for 2022 using the total tax of 2021.  He shouldn't be anywhere close to that amount of tax in 2022.  ATX automatically used the direct debit info for the ES quarterly payments for 2022.  Client saw a pending payment in his account for April 18, IRS first quarterly 2022 payment.  That was the reason for my post.  Things went as various comments said.  IRS and Ky got their 2021 tax payments and the 2022 ES payment was rejected because funds weren't available.  I was annoyed with myself but also ATX.  Ky 2022 ES also calculated the ES payments but ATX gave me a prompt in the 'Check Return' function.  So I kept Ky from doing the same thing.  I just missed checking the Fed 1040ES and the direct debit info went in with the efile transmission.  Now my question is how to stop or cancel the IRS instructions for the direct debit payment of 2022 estimated payments.  Anyone have any suggestions?  Is there a direct telephone line to call for these matters?  Client has in the past paid online estimated payments.  Is there a way he can go into that system and cancel the direct debit that IRS has for him.  2021 tax is correct and all paid correctly.  Just wanting to get the 2022 ES direct debit attempts stopped for 2022.

[Lynn EA USTCP in Louisiana]

Call IRS e-file Payment Services 24/7 at 1-888-353-4537 to inquire about or cancel your payment, but please wait 7 to 10 days after your return was accepted before calling. Cancellation requests must be received no later than 11:59 p.m. ET two business days prior to the scheduled payment date.  Posted on the IRS website Feb 8, 2022

https://www.irs.gov/payments/pay-taxes-by-electronic-funds-withdrawal

 

[Abby Normal]

45 minutes ago, Randall said:

ATX automatically used the direct debit info for the ES quarterly payments for 2022.

ATX does not "automatically" make the estimated tax payments direct debit. You have to check a box on the payment page. Ours is marked 'paper check' by default, because we almost never set up estimated to be debited.

[Lynn EA USTCP in Louisiana]

I want to clarify my post, just above Abby Normal's.  Calling the IRS to cancel an electronic funds withdrawal should be done by the taxpayer, not the tax pro. 

 

[Randall]

44 minutes ago, Lynn EA USTCP in Louisiana said:

I want to clarify my post, just above Abby Normal's.  Calling the IRS to cancel an electronic funds withdrawal should be done by the taxpayer, not the tax pro. 

 

Thanks.  I was wondering if he could do that on line.  Is it the same as the direct pay page?

 

[Randall]

51 minutes ago, Abby Normal said:

ATX does not "automatically" make the estimated tax payments direct debit. You have to check a box on the payment page. Ours is marked 'paper check' by default, because we almost never set up estimated to be debited.

Thanks Abby.  I remember setting the 2021 tax payment but not for the ES.  Maybe I hit it accidentally.

[Randall]

I told the client I'd call just to see if they would let me cancel.  After being on hold for an hour, they did allow me to cancel.  Had to go thru 3 different cancellations (for the estimated payments 6/15, 9/15 and 1/17) giving dates, amounts, bank routing and account numbers three separate times.  Got the agent's number and cancellation confirmation numbers for each of the remaining 3 payments.  I assume there is nothing to be done for the first payment (4/18) since it bounced.  As someone said, I guess the client will receive a letter regarding that payment.  Since these are 2022 estimated payments, I assume there would be nothing more to do.

[jklcpa]

4 hours ago, Randall said:

IRS and Ky got their 2021 tax payments and the 2022 ES payment was rejected because funds weren't available

You may want to have the client pay the 1Q'22 estimate now.  Yes, it will be late, but will help minimize any 2210 penalty, if any, by paying that as close to the due date as is possible.  Client's options now for paying the 2nd, 3rd & 4th estimates are by check, direct pay, or EFTPS.

[Randall]

53 minutes ago, jklcpa said:

You may want to have the client pay the 1Q'22 estimate now.  Yes, it will be late, but will help minimize any 2210 penalty, if any, by paying that as close to the due date as is possible.  Client's options now for paying the 2nd, 3rd & 4th estimates are by check, direct pay, or EFTPS.

Thanks for the reminder.  But as of now, he may not owe anything.  Had a big tax bill for selling some stock (lots of it from a long time ago).  He's usually good at watching and paying estimates.  So we'll see about the other payment dates.