It’s June and most normal people are done dealing with taxes. They received their tax return a couple months ago and taxes are the last thing on their mind.
Yes, that’s how it is for most normal people.
I’m not one of them.
Today I want to talk about how the IRS lost my money. The IRS lost a quarterly tax payment I made for 2014 taxes. According to their records, the payment never occurred. According to my bank, it most certainly did occur.
How did I get myself into this tax nightmare? Glad you asked.
Getting Burned By Taxes – 2 Years in a Row
A little over a month ago I shared about what I learned from doing my own taxes. Well, one thing I learned was that I need to check my income and tax withholding at least a few times throughout the year because we weren’t withholding enough money.
Three years ago I paid in – unexpectedly a few grand. It wasn’t a huge amount of money, but who likes to pay in? I think paying in a few hundred dollars really isn’t that painful, but paying in a few thousand dollars can really hurt, especially if you didn’t plan on paying in much at all. Then again…we simply were not putting in the time and effort to tax plan throughout the year.
The next year I paid in quarterly estimated taxes for the first time. I was making money blogging and running an excel consulting service, as well as had a rental unit that provided even more side income. When we finally went to calculate our taxes we received some terrible news: we owed over $7,000. How could this happen? How?!? Oh, right. We yet again failed to do tax planning throughout the year.
My wife was working two to three part-time jobs throughout that year and very little was being withheld by her employers. In one job there was literally zero dollars withheld. Combine that with higher-than expected side income and quarterly tax payments that were far too low and you end up owing money in. In our case, a lot of money.
2014 Priority: Get a Tax Return
After two disastrous years of having to pay in sizable amounts to the IRS, we vowed to never again make the mistake of not planning for taxes. We also vowed that in 2014 we will get a tax return.
Throughout 2014 we did everything we could to make sure that we wouldn’t have to pay in. This included:
- Large Quarterly Estimated Tax Payments – The thing people don’t realize about side hustle money is that it’s taxed at a much higher rate than income you make as an employee. If you inaccurately calculate what your tax liability will be from your side income you very well could be paying in a sizable amount to the IRS at the end of the year.
After my two disastrous tax years I spent time learning more about quarterly estimated taxes. I even wrote up a pretty good post (imo) about how to calculate quarterly estimated taxes. I wasn’t taking any chances and was very liberal with my quarterly tax payments in 2014
- Additional Tax Withholding – Besides paying in large quarterly estimated taxes, I also had a sizable amount withheld from my paycheck on top of what would typically be taken out. I wasn’t taking any chances this year! My wife also had some additional money withheld from each of her paychecks.
- Regular Review of Financials – Throughout the year I regularly reviewed how much income we made from our 9-5 jobs and side hustles as well as how much we had withheld up to that point. I ran various calculations in Excel to make sure we were on track to get a tax return.
All of our hard work paid off and we received what some would call an excessively high tax return. We couldn’t be happier! We knew we were going to get a return, just not sure how much it would be. Thankfully it was much higher than we had anticipated.
Sidebar: I totally understand why some people are huge advocates of either getting a tiny tax return or paying in, but after two years of large tax bills all logic & reasoning went out the window. We were desperate for a tax return.
The IRS Lost My Money!
Typically you expect tax returns to be accepted by the government. Worst case scenario you get audited. But if you escape an audit there should be no problem getting your return. You might just have to wait a while. Right? Wrong.
I received an email a few weeks after we filed our taxes saying that the IRS adjusted our tax return to reflect their records. They showed only three quarterly tax payments.
I couldn’t believe it. I went to my records and thankfully had really good documentation of all four payments. I printed off a copy of the cleared check from my bank website as well.
Never did I think I’d have to fight the IRS to pay me back money I had paid them. But there I was doing just that.
I took a lunch break at work to call the IRS. After about 30 minutes or so I finally got on the line. The IRS agent spent about 20-25 minutes gathering information and checking databases. Nothing.
My case is now in the “hard trace” division. God only knows how backlogged they are or how motivated they are to get cases closed in a timely manner. All I know is it could be quite some time before I see that money.
Have you ever had to pay in a large amount of money for taxes? Have you ever had issues with the IRS? How much time and effort do you spend on tax planning each year? Do you think I will ever get my money back?
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Oh my! That really stinks. I hope they find it. They lost my quarterly payment a few months ago but they found it quickly with just my confirmation number. I’m glad it was that easy for me!
SenseofCents Well, they HAVE to find it because clearly they took my money! I’m sure it will all work out in the end it’s just a painfully slow process.
Man, sorry to hear it DC! I don’t know how, but they haven’t lost any of our money, or any other errors for that matter, yet but I’m just waiting for it to happen. We just switched to an S-corp, which I guess requires even more paperwork and different payments so I’m just waiting to have to deal with some IRS screw up.
Oh geez. I am so sorry to hear that. Our tax code is so overly complicated….I hate it that they lose stuff on top of the hassle we already go through! I’m glad you kept proof. We always send our paperwork and tax payments certified mail too.
Sorry to hear this happened to you. Luckily it is only one quarter but it’s still a huge hassle and valuable money! It’s no fun to owe thousands like you did last year, but if you have the money to pay, I guess paying in isn’t really different from regular withholdings. But not ideal.
Ugh, what a pain!!! How scary. Luckily, we’ve always gotten refunds and never had to deal with anything like that. Financially, refunds might not be the best choice, but it works well for us. :-)
FrugalRules Fingers crossed you have no issues with the transition. I’m sure lots of people deal with errors each year, but it’s just painful to not receive a payment you (reasonably) expected to get back by now.
Holly at ClubThrifty I’m an accountant and overly paranoid, so I think I save more evidence/support/backup than most people. I feel bad for those who do not keep as good of records and end up having to go through this. Thankfully banks keep good records of transactions and can be used for support as well.
Pretend to Be Poor Yeah thankfully it wasn’t more than one quarterly payment! I think this year I will shoot to pay in zero instead of getting a large return. It’s just not worth having to wait to get your money back.
Laurie TheFrugalFarmer I’m glad you’ve never had issues! Refunds are a good choice imo, if you actually GET the refund ;)
The IRS has so many problems that I am not surprised just sorry that it has happened to you. It really is time for the government to clean house and get rid of some of the workers who have been there since B.C. I hope everything works out soon for you.
I am so sorry! This sounds rough. Thankfully, you have proper documentation. Could you imagine if you didn’t? I think online banking helps with this in general because there is always a trace. That said, still a nightmare. Sending my thoughts and prayers your way to get this cleaned up asap!!
Sorry to hear about the problem with the IRS. Hopefully it will be resolved quickly. I haven’t had to deal with quarterly payments but if/when I do, I’ll have to check out your post about that. I did have to pay the IRS this…much more than I expected. It was mainly due to my wife earning more and working more. I changed my withholding so that won’t be an issue next year, plus we should be getting more of the mortgage interest deduction so we might even get a refund.
Really sorry you’re having to deal with this, DC. No one cares about your money as much as you do.
I suppose Uncle Sam might now be thinking of this erroneous amount as his money though…so there’s that. Which sucks.
Having worked in government for a long time, my rule of thumb is that the squeaky wheel gets the grease. Be persistent.
Wow this sounds like a nightmare! I’ve been lucky in that my taxes are relatively simple. I only have one income stream from my employer, and taxes are withheld each pay period. I typically get a tax refund. Because my taxes are simple I’m able to just use an online tax program. But I’m sure this all gets much more complicated with more people and more income streams!
Filling quarterly taxes is the part I am not looking forward to for our side business. I will definitely be reading some of your posts on this matter. Keep us updated on your progress with the IRS.
I’ve had some fun tax time problems with the IRS related to estimated tax payments. In my case it turned out to be a TurboTax problem where somehow an estimated tax payment was counted twice for some reason, and in the end I had to pay an extra $1500. In any event, it’s never fun paying those quarterly estimated tax payments, or dealing with the IRS when something goes wrong.
I’ve had to make thousands in payments on tax day one year, and it definitely caused me to over-correct – paying in more than I needed to the following year. This year I won’t need to make estimated tax payments because I overpaid by so much last year – and i just applied our refunds to this year’s estimated tax payments. Of course, if estimated income is larger than expected, I’ll definitely need to stay on top of it!
Eesh, I’ve been very lucky that all of my payments have been recorded correctly. Sometimes I worry about them just missing a received payment. Guess now I know that’s actually possible.Yet another stress dream to add to the list.
Oh man…I would be so pissed if that happened to me. I’m really sorry to hear you have to deal with all this, and hope that you not only get your money back, but that it happens very soon!
Petrish @ Debt Free Martini Yeah unfortunately I am not alone in my problems as I’m sure tons of other people are in waiting mode as well. I am sure it will all work out but I’m expecting it to take a LONG time before that money get deposited in my bank account.
Financegirl I’m so glad I have the documentation to go with each payment. As you mentioned banks also keep great records so I’m confident I will eventually get my money back. Appreciate your prayers!
Andrew LivingRichCheaply Sounds like you were in a similar situation as I was a couple years ago. It’s easier to adjust your withholding and pay in a bit more over time than to be hit with a big bill all at once.
I can’t believe this happened to you! We had to pay a large sum of money a few years ago, but we had the IRS auto draft from our bank account so that they wouldn’t lose the check. I hate tax time and hope all the time for a flat tax or some kind of change in our tax code because the way it stands now is a mess.
Soooo frustrating!! I had a hell of a time dealing with the IRS when someone filed federal taxes in my name a few years ago. I finally got my return a year later and the IRA actually did pay me interest for that year….though they taxed it the next year! Good luck!!
That sucks. I had a minor issue with the IRS due to my TPIR winnings. It took a few months but the matter eventually was taken care of. Hopefully the IRS gets your money to you as soon as possible.
What a nightmare and I’m sorry you have to go through this. It is good, though, that you keep such stellar records. It may take some time (when doesn’t it) but I’m sure you’ll get the money you’re owed. Fingers crossed that your 2015 taxes are easy peasy. :)
I’ve never owed a ton of money, but I did have an issue where they sent me a letter saying I owed $2,500. I knew this was wrong and gathered the facts and sent them a letter telling them it was wrong. It was cleared up relatively quickly.
That is the worst! The “hard trace” division aka the waste basket?
Damn that’s a real shame DC! Sure that it will work itself out for you though :)
DonebyForty Yes thankfully I’m a persistent person. If I hadn’t taken action then they would “assume” that I agreed to the adjusted return. Also when I called again after a month the person I got that time was MUCH more helpful. Even though I got a letter after that saying they needed an additional 45 days to look into it… *sigh*
mycareercrusade Good to hear! I am a persistent guy so I am sure I will eventually get my money back. But it’s a matter of “when”….
Mark@BareBudgetGuy Haha thats what I thought! I ended up calling back a second time and the person was much more helpful. Was on the phone for nearly 2 hours though…such a debacle. I got a letter this weekend (after this post was written) that they are aware of my issue and need at least 45 days to work on it (so please don’t call before then!).
ferventfinance Good to hear! I think there are more mistakes at the IRS than most people think. You really need to be on top of things to avoid being on the bad end of one of those mistakes. It’s a shame the tax code isn’t simpler.
ShannonRyan Yeah I’m pretty confident that I’ll get the money back, but it could be quite some time. I’m sure there are many issues they are working through, so you never know when they will get around to yours. I’ll probably have to call back and have another 2 hour conversation with an agent…
Jason @ The Butler Journal I still think it’s so AWESOME that you won on TPIR! One of my life goals is to be on a game show. I can see how prizes are scrutinized closer or are prone to error/review. Glad your issue got cleared up!
As I say every time I have to deal with the IRS, if they were any kind of private business, they would have been out of business a long, long time ago. My situation this year was not as bad as yours, but they did throw a penalty at me for a late return when I had documentation that an extension was filed and received by their office. I don’t know how they can say you didn’t pay when you have a cancelled check. Amazing!
We are good, hard working, honest people who try to do the right thing and when you have to spend hours of your life dealing with what feels like a clown circus, it’s just not right. I totally am beginning to understand the position in support of a flat tax on consumption and throwing the IRS out the window.
Ali_AnythingYouWant The multiple income streams is what is driving the issue. If it wasn’t for side income we wouldn’t have to worry about quarterly estimated taxes. With that being said, I’ll take the income with potential for issues over no side income!
mrandmrsbudgets It’s not as big of a pain as I thought it would be until I had the problem with this year’s filing. I hope that my situation is rare. But quarterly estimated taxes aren’t that intuitive so feel free to check out this post I wrote as well as ask me any questions: https://www.youngadultmoney.com/2014/03/19/how-to-calculate-quarterly-estimated-taxes/
moneymatters Sounds like I did the same thing you did! I definitely overcorrected, and at first I was happy about it. But dealing with this issue and not having the money in my account is irritating. I’ve already spent about 4 hours on it over the course of two phone calls and a letter, and I’m sure I will have to have another 2 hours phone call to get things finalized.
But like I said in the previous comments, better to have income with issues than no income at all!
Eyesonthedollar Actually the check was DEPOSITED! So they deposited the money, they didn’t cancel the check. I am a big fan of the flat tax on consumption and it really is incredible how much time and effort (and energy) taxes take for even the smallest of businesses. I mean come on I am not making millions blogging! But I would love to see a flat consumption tax.
AbigailP Yeah hopefully this sort of thing is rare, but I honestly doubt anyone has statistics on it. I’m sure the IRS doesn’t keep stats on how many times they screw up. It’s disappointing to not have the cash in my bank account because I feel like it’s being held hostage. Really regretting overpaying at this point.
Christina@EmbracingSimple Thanks Christina! I’m sure I will get it back, but it could be a while haha.
blonde_finance It’s pretty incredible how complicated our tax code is. It makes it easy for lobbyists, though, and it’s too easy to campaign against a flat tax. I think we’re stuck with it until we have a change of our heart in the US.
SimplySave Wow you got interest? That’s unheard of! Haha, but good to hear it worked out for you.
Tax planning seems to take a tax professional or tons of personal research to do effectively. Even as a CPA, I’m constantly researching how to most effectively map out our taxes each year. The tax code is overwhelmingly complex and unfortunately minor changes to your financial situation can have a big impact on your tax liability.
With that said, this is truly the first I’ve heard of something so straight forward being missed by the IRS. Clearly there is a paper trail on both sides of the quarterly payment/deposit so hopefully they can resolve this quickly. You should get interest tacked on for the amount of time your refund was underpaid… best of luck DC
I had to pay in ~10K in 2014 (for 2013). This year I claim single 0, and pay an extra $850 every two weeks to the feds and an extra $400 every two weeks to the State.
Taxes are necessary, but evil…
We’ve had some large payments to the IRS due to the same factors –
blogging income in addition to my wife’s part time jobs taking zero
federal and state income tax out of the checks. The blogging part is on
me, but I just don’t understand why it has to be so hard to get income
tax taken out of a check. One should be able to state how much income
they made last year combined with their significant other, and have a
semi-correct amount withheld. Taxes in general just shouldn’t be that
hard.
Financial Tour Guide Do you really think I’ll get interest? I’m not expecting it. Would be a nice gesture but I simply don’t expect the IRS to come through on something like that. It’s really unfortunate how complex our tax code is, but in this case it really was a simple error. Hopefully they can rectify it this year.
No Nonsense Landlord With your rental income I suppose you would want a pretty high amount withheld. I can’t imagine how complicated your tax returns get. I envy your real estate investments but definitely not your taxes!
DebtChronicles My wife had a similar situation as your wife. The part-time jobs really hurt us a couple years ago. I agree that taxes shouldn’t be as difficult as they are, but unfortunately we live in a day and age where the tax code is extremely complicated.
You will likely have to resend the same information multiple times to get your refund. Document every time you talk to someone at the IRS. We had an audit issue and ended up in tax court. Fortunately we were assigned a moderator who say the IRS error quickly and found in our favor. Unfortunately, it cost us money & time.
DC @ Young Adult Money Financial Tour Guide There are circumstances where the IRS will pay interest on your refund. If the refund is sent 45 days after the filing deadline (April 15th) or if the IRS amends your return (as they did to you) and later realize the assessment was too high. I’d be interested to hear back how this gets resolved and whether or not they pay you interest (and what rate). Hope it gets worked out
houseoftre Ah sorry to hear about that. Yes I’ve been documenting everything and have good records. They just sent me a letter saying they are aware of the issue and asked me not to contact for another 45 days….pretty sure I’m not waiting another month and a half to reach out again!
That’s sucks that the IRS lost your money, that’s so irresponsible of them. It’s good that you have documentation though to prove you paid and it might take a while, but hopefully they will sort the issue out so you can get your money back. I usually get a refund back but this year I’m side hustling a lot more and I’m a little nervous I’ll miscalculate how much I need to set aside for taxes. I’m definitely going to be checking out your post about calculating your quarterly taxes. Taxes are still so confusing to me but you seem so organized and on top of the issue so I really hope everything works out well!
Those who are claiming refund is a good option please note my experience IRS owed me over $5K in refunds. I filed returns on time and I receiver a ID Verification notice which I think is another way to simply postponing the case. So I was told I need to wait 9 weeks after I submit the ID Verification details. I called several times before 9 weeks only to hear that while my ID was verified there is a hold on my payment for reasons unknown but no one would do anything unless it is 9 weeks.
I called after 9 weeks there was still a hold on my payment and no one knew anything about it. So I am told that they have put up a service request which will require another 4 weeks and even after that nothing happens I must go and find a tax advocate.