For the first time in my life, I accidentally paid my estimated taxes twice. If you ever do the same, I want to share with you what happens next and when you'll get your overpayment back.
Bottom line: Don't worry too much. You'll eventually get your money back within six weeks.
How Could I Accidentally Pay My Estimated Taxes Twice?
The reason why I accidentally paid my taxes twice is because of new software and user error. If you do your taxes manually, you will likely never experience accidentally paying your taxes twice.
This year, as I've always done since 2002, I decided to do my own taxes online. Tax software makes filing easier. And after 20 years of experience, you get pretty good at it.
I like understanding the latest tax laws so I can better optimize my tax liability. I also like feeling the pain of paying taxes which helps determine how much I should work over the next 12 months.
Every time I do my own taxes, I also estimate my future passive income investments over the next 12 months. The bigger your investment portfolio, the more you need to stay on top of your investment income and distributions to manage your tax liability.
Finally, when over half of working Americans don't pay federal income taxes, it feels good to help your fellow citizens. At the same time, the more taxes you pay above a certain reasonable threshold, the more you want to take it easy. My reasonable threshold is a 25% effective tax rate.
Paid A CPA To Review My Work
If you do your own taxes, you will likely have made an error somewhere. Therefore, this year, I decided to pay $200 more to have a CPA employed by the tax software firm I used to review my taxes. But initially, this decision was not by choice.
You see, the online software didn't allow me to continue filing my own taxes if there was a figure in Box 11 of a K-1 form. And given I invest in multiple private funds and investments, I had multiple K-1 forms with a figure in Box 11.
Instead of complaining about this bug, which is really a feature to make the tax software firm more money, I went along with the entrapment. My ~$20,000 estimated additional federal income tax bill (on top of what I had already paid throughout 2021) was large enough to warrant some review. Maybe paying $200 for a CPA would help me find some errors, save on taxes, and at least input multiple K-1s for me.
So I paid $200, sent $20,000 in estimated tax in April to the IRS, and filed an extension. I couldn't file my official taxes because I was waiting for two more K-1s to come through. Once the K-1s finally came in August, I uploaded them online and had the CPA input the forms and review my taxes.
Tax Savings Surprise
After the CPA was done reviewing my work, the dashboard said I owed an estimated $13,372 instead of the $20,000 I had paid in April. Hooray! Either the two remaining K-1s had lowered my taxable income or I had made some errors.
Whatever the reason, I didn't verify it because I was just so glad to be done with the process. Further, I decided that henceforth I would always pay an extra $200 to have a CPA review my taxes.
Getting a $6,600 federal refund on top of a ~$600 state refund sounded great. So I quickly clicked some buttons and filed my taxes online.
Ended Up Paying Double
Then dread hit me after I got this message.
“Good news, SAM! Your 2021 federal taxes are complete. Your balance due will be withdrawn from your bank account on 2022-08-16.”
Instead of automatically getting a $6,600 federal and $600 state refund, I ended up paying an extra $13,372 in federal income taxes and another $1,300 in state income taxes! The software did not realize I had already paid $20,000 in federal and $1,900 in state estimated taxes in April.
Ideally, while filing my taxes, a page would appear that would ask how much in estimated taxes I had already paid. I would then input the amount and the software would then pay the difference if any. But there was no box. So, I just assumed the tax software would know since I had used it to originally pay my estimated taxes.
When I asked the CPA how I could have prevented this situation from happening, she told me I should have told her what I had already paid in taxes. She would have then delinked my checking account from my automatic electronic payment profile.
When I asked her what would become of my extra payment, she said not to worry. Worst case, the IRS would use the payment as credit for my estimated tax payment for next year.
That wasn't a good enough answer. I wanted my money back ASAP so I called the IRS at 1-800-829-1040.
How Tax Overpayment Is Treated According To The IRS
After waiting for one hour to get through to someone, an unenthusiastic woman on the other end greeted me. I told her the situation and she said that any tax overpayment to the IRS would get refunded within six weeks after the IRS accepts your tax filing. Once you file online, it takes a couple days for the IRS to accept your tax filing even if you get an e-mail notification saying it has.
I asked the IRS agent whether the IRS had my bank info so I could receive a credit electronically. She said yes. After all, the IRS received my estimated tax payment electronically.
However, what ended up happening is that I got both my California state tax refund and federal tax refund in the mail. The California state tax refund came two weeks after I filed my taxes. The federal state tax refund came three weeks later.
Therefore, always make sure to have the proper mailing address when filing your taxes. Don't just put some random mailing address because you don't want the IRS to know where you live or work.
The IRS Is Not Out To Get You
Even though the IRS sounds like this massive organization where files could easily get lost, they won't because you have electronic and paper records of your payments.
If a physical check gets lost in the mail and it hasn't been cashed, the IRS will eventually cancel the check and reissue another one. If you somehow never get your refund, you'll just have to keep calling them. They have all your information because you've already made a payment in the first place.
Worst case, you should be able to use your missing refund as a tax credit for the upcoming tax year. The IRS is not out to get you. It realizes the tax code is complicated, errors, and over and under payments happen all the time. I've spoken to a handful of IRS agents on the phone before. Each one has been helpful in answering my questions.
Sooner or later, you will get your tax refund.
A Recap From Paying My Estimated Taxes Twice
- You must always pay your estimated taxes by the tax deadline, usually April 15 – 18
- If you pay more in estimated taxes you will get a refund within six weeks after the IRS accepts your tax return
- If you pay less in estimated taxes, you may face an underpayment penalty of 5% of the underpaid amount, capped at 25%. For example, if you underpaid by $2,000, you could face a $100 – $500 penalty.
- To avoid paying an underpayment penalty, if your AGI for last year exceeded $150,000, you must pay the lesser of 110% of last year's tax or 90% of this year's tax. This is the safe harbor rule.
- To avoid paying your taxes twice electronically, make sure your banking information is not linked to the tax software for an automatic debit once you file your taxes. If your dashboard shows that you are owed a refund, then having your banking information linked is crucial if you are filing electronically.
- To make sure you get a tax refund, double check you also have the proper mailing address for the IRS. The IRS may issue you a refund by mailing you a paper check or sending you a credit electronically.
- Double check you have enough cash in your linked bank account before making a tax payment.
- If you file an extension, you have until October 17 to file your taxes
So there you have it! I hope you don't make my same mistake and pay your taxes twice by accident. But if you do, you should eventually get a refund.
Always Have Six Months Of Cash On Hand Or More
It was a shocker to go from expecting a $6,600+ federal refund to realizing I had paid another $13,372 in federal taxes after paying $20,000 earlier in the year. However, luckily, I had enough cash in my linked bank account where the damage didn't hurt.
I had faith the IRS would do the right thing and refund my money. In fact, I was more curious how this whole situation would play out so I could write this post!
But if my account was running low on cash, I would have been stressed out. Waiting up to six weeks to get my refund when bills are usually due in four weeks or less would have been an unpleasant situation. How would I pay my mortgage? Was I supposed to ration our food? What would be my late payment penalty from my healthcare provider? The questions would snowball.
But supposedly, some 56% of Americans are unable to cover an unexpected $1,000 bill with savings, according to a telephone survey of more than 1,000 adults conducted in January 2022 by Bankrate.
Due to emergencies or self-induced errors, it's always good to have six months of living expenses in cash or more. This way, you can smooth out the financial bumps you will inevitably experience in your life.
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How To Pay Little-To-No Taxes For The Rest Of Your Life
Reader Questions And Action Items
Readers, have you ever accidentally paid your taxes twice? Have you ever experienced an IRS nightmare? What lessons did you learn from it? How much cash savings do you have on hand? What do you think is the ideal amount of savings to have?
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9 thoughts on “Accidentally Paid Your Estimated Taxes Twice? Don’t Worry!”
Falling Victim to the IRS
Federal taxes are deducted from my paychecks. In 2020 I had over $26,000.00 in federal taxes deducted from my paychecks. I filed my federal income taxes for tax year 2020 and expected an over $6000.00 refund. Instead, in early Spring 2021 the IRS sent me a letter stating that I paid $0.0 federal taxes in 2020 and that I owed over $20,000.00 in 2020 taxes.
I called the number listed which turned out to be IRS Collections. It took about three minutes for the Agent to review my records and determine it was a mistake and referred to the mistake as “human error”.
The agent advised me to file an Amended Return with a letter explaining the situation. Spring of 2021 I filed the Amended Return with the explanation letter. I tracked the Amended Return until December 31, 2021 when it displayed processed.
When I didn’t receive a refund after a couple of months, I called the IRS and was told that the Amended Return was rejected. The IRS rejected my Amended Return without notifying me. It was now early Spring 2022. I filed a second Amended Return which was received March 15, 2022.
Meanwhile, I’m re-paying the 2020 Federal taxes so that the IRS doesn’t put a lien on my assets.
Sam, long time reader here.
I’m aware that you have real estate investments in various states, which issue K-1s. I’m curious if you end up having to file income taxes (from the K-1) for each states where the investment properties produce income.
Yes, if you receive income from different states via your K-1, you need to file income taxes for that state. Good reminder as that’s what the CPA did for me as well when she filed my remaining K-1s. So that makes the $200 spent even more worth it.
Related: Do I Get A K-1 For Each Private Real Estate Investment?
Thanks for the knowledge sharing. What tax software do you use?
Gosh that must have been so stressful but glad it all got sorted out! I would have been so frustrated if that happened to me on a big payment.
I’ve overpaid myself before but only by a very tiny amount like $3 which was small enough I wasn’t upset. I think it ended up getting rolled into my estimated taxes.
Thanks for the detailed tips!
Yeah, $3 isn’t a big deal. But overpaying by the thousands can be very painful if your cash balance isn’t healthy. Hope this post prevents folks from making my same mistake.
A few additional ways to cross check your return:
Do check your previous year tax return for any excess taxes paid., or left-over;
Do check any/yet-to-claim/carry-over losses upto $3000
Also, login to IRS – check for transcript for wage-and-income transcript for the year and ensure all your income/revenue/K1s and brokerage statements are accounted for.
Also, check other transcripts to ensure if there are any tax pre-payments or estimates payments have been sent/made
Excellent tips! Will include. Thanks