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IRS Update: Payment Plan Default!!!

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Well isn’t the IRS just a bucket of sunshine to deal with? (Said dripping with sarcasm)

I wrote (here) about how the IRS was one of my top 3 organizations/entities that I hated dealing with (the other two, Navient and Social Security Administration are still at the top of my S-list, too!)

How it all started…

We owed a lot of money for our 2016 taxes and it took us a LOOOOOOONG time to set up a payment plan. I explained the whole back-story and why it was taking so long in this old post from back in October 2017. Basically, to initiate a payment plan we had to sign an agreement that said we agreed with the tax debt owed. Under advice of our CPA, we were trying to contest a portion of the amount due so we couldn’t arrange a payment plan for the remaining balance since we wouldn’t sign to agree to the full debt. It took a long time and a lot of back-and-forth to come to an agreement. We finally did that in October of 2017 (again – this is for taxes that were due for tax year 2016). That’s a reallllllly long time to come to an agreement!

So here we are, faithfully making our monthly payments. I have never missed a month and never been late with a payment.

Things unraveled quickly…

Imagine my surprise, then, when I opened an incredibly thick envelope from the IRS to receive a notice:

“Send us $XX,XXX [full amount of taxes owed] or we may seize (levy) your property on or after July 18, 2018.”

WTF??? What are they talking about? We’ve been making our agreed monthly payments faithfully! Why would they demand full payment within one month??? Or else they’ll seize our property???? Holy crap!!!

That was sufficient to scare the crap out of me. The IRS means business.

I logged into my online account where I always make payments. All of my payments have been recorded as normal. I tried to click to view our payment plan information, but it says the system is not available and provides a phone number to call. It literally took me 3 days of nearly constant calling to connect with an individual. I kept getting a message that “due to high call volume, we cannot accept your call at this time.” Finally today I made it into the cue to wait to speak with a real person. Per usual, it took over a half hour before I was even able to get someone on the phone.

When I finally got a person on the line, I explained the situation. It took her a little bit of digging into the account but then she discovered, we’ve been considered defaulted on our payment agreement since November 2017 (it was just established in October 2017, so November was our very first scheduled payment!!!)

I’ve always done direct payments on the IRS website. When I do so, I have entered my social security number to identify the tax debt. But when we filed our 2016 taxes, we filed as married filing jointly and used my husband’s social as the primary. Because I had made our payments with my social security number instead of my husbands’, they didn’t register as normal monthly payments. Someone had to manually change the payments every month from my social to the joint filing account (which is why I did, indeed, receive credit for the payments). But because of the way the system works, if it’s not filed under hubs’ social security number, the system considers the payment to have NOT been made. And it immediately considered us to be in default.

Our payment plan is no longer even in place!

Even though I’ve been making every single payment on time every single month. Even though I never received any notification of default. Even though I had no idea I had to make the payments under hubs’ social or else it wouldn’t “count” in the system.

I have to start all over. We have to re-do the whole payment plan. The real pain with this (in addition to the waste of time and stress, etc), is that there’s a $225 fee to set up a new payment plan. There’s apparently no way to waive this fee given the circumstances (the representative even said she felt bad for us and that she personally thought it was unfair, but her hands are tied). There are cheaper ways to set up the plan: I could do it online or I could schedule auto-debit (instead of paying direct-pay as I had been doing). When I explained that I’d tried to see the payment plans in the IRS’s online system and it wouldn’t let me and told me I had to call to speak to a representative, she said “oh sorry, I guess that’s not an option for you.” She said there’s a new online system and that some people simply are not eligible to set up payments through the online system. She didn’t explain whether there was rhyme or reason for this (e.g., Is it because we owe over $10,000?? Is it because the system says we’ve defaulted on a previous payment plan??? No one knows).

Establishing a new payment plan

I will receive a new payment plan agreement in the mail and I’ll be charged a lesser amount if I agree to the auto-debit (which is what I’ll do), but it’s still a fee of $149 to establish the payment plan. The same payment plan that I already thought we had in place. That I was already paying toward every month. Or so I thought. UGH.

Thankfully, the representative said she does not believe we will be at risk of having our property seized as the IRS notice indicated. If we set up an auto-draft where the IRS has direct access to debit from our bank account, we should be fine. They will only debit the agreed-upon monthly payment and the auto-debit will also eliminate the possibility of incorrect payment. Since I will no longer be doing direct-pay, I won’t be entering a social security number one way or the other – the payment will just be taken and applied appropriately.

A huge pain in the butt and a costly lesson to have to re-establish a payment plan. But hopefully (fingers crossed????) this should resolve the issue. And we’ll continue making the same payment we’ve been making all along so nothing changes in terms of our monthly budget.

Have you ever experienced something similar when dealing with the IRS? I’m still shocked I never received any notice of default. Until this notice that the IRS was going to seize our property, I had no indication whatsoever of a problem! Scary stuff!

 


CPA Update: 2017 Taxes

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I realize we’re now half-way through 2018, but I never provided a full update of our tax situation from 2017! The news is mostly good…..but a little “mixed,” I guess.

Our Tax History

In 2016 we messed up badly. During that year, hubs was still fully self-employed and although I had a full-time job where taxes were withheld from my employer, I also still worked part-time in a contract position where taxes were not withheld. Long story short, we WAY underestimated our tax payments. Come tax time, we were hit with a MASSIVE (like, felt insurmountable) tax bill. On advice of our CPA, we tried to fight a portion of the tax bill and it took 6 MONTHS of back-and-forth before we were finally able to come to an agreed payment plan. I’ve never revealed the exact amount of back-taxes mostly due to embarrassment. I did say that the payment plan we settled on will have us paying $283/month for….basically forever. A long time, okay?

ANYWHO….. The 2016 tax experience scared the pants off of us and made me extra cautious in 2017. I knew I was withholding more from my paychecks than necessary, but I wanted to err on the side of caution. 2017 had a lot of big changes for us: hubs closed his business and went back to school full-time. I had to leave my part-time job after getting a big raise at my full-time job and having to sign a non-compete agreement. All these changes made it so I wasn’t quite sure what to expect come tax time. Again, we used a CPA. I gave him all our stuff and held my breath, biting my nails, until taxes were complete. For some reason, I was still expecting we’d owe money. I was just hoping it wouldn’t be too much.

2017 taxes

When taxes were done, I couldn’t believe the end result. We were owed a refund! I’m using round numbers here, but we had overpaid our federal taxes by about $400 and had overpaid state taxes by over $800!!! This was a HUGE relief for me! I knew the federal overpayment would be applied to our back-taxes, but I fully expected (naively) that the state refund would still come back to us. I checked online a couple of times to try to verify the refund, but the online system just said that due to the high volume it was taking longer than normal to process tax refunds and to wait 8 weeks before calling to inquire further. So here I am, thinking I’ll get a check in the mail and it’s just going to take awhile.

Spoiler alert: I did not receive a check in the mail. Instead, I received this letter in the mail.

We used some or all of your 2017 refund to pay outstanding liabilities……

By law, we must offset any refunds or overpayments to certain government agencies.

Of course they do. They had to use the refund to pay for our 2016 back-taxes. I should’ve known this would happen. For some reason (false hope), I really thought we’d get the state portion of the overpayment back. But nope. It goes straight toward our past debt. Would’ve been nice to use that money for different, higher-interest debt. But I get it. It is what it is.

Long Story Short

No refunds for 2017. But no additional tax liability either. Now that our work situation has stabilized a bit (hubs now goes to school AND works part-time as a personal trainer where his taxes are withheld & I still just have the one full-time job where taxes are withheld from my paychecks), I feel safer to adjust my withholdings slightly so I will get just a tiny bit more per paycheck. Overall, we’re in a pretty good place. I don’t want to overpay in taxes (especially since I now know for 100% fact that we aren’t getting any overpayments back!!!), but I also don’t want to be short and end up owning money either. We should be in pretty good shape to be right about $0 owed or overpaid for 2018. We’ll check-in with our CPA again in a couple months just to make sure everything looks good and to see whether he suggests or recommends any additional changes to our check withholdings. With any luck, we can come in right about even for 2018 taxes. Fingers crossed!

And the $283 monthly payments to the IRS will continue as-is. For the rest of time. 😉

How did your 2017 tax situation work out? If you received a refund, what did you do with it?


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