georgina
DIS Legend
- Joined
- Apr 21, 2003
- Messages
- 16,357
This may be of limited interest, but as someone who pays quarterly estimated taxes, I found it interesting. My youngest works for a tech company in SF. They went public several years ago, and she had a lot of stock options. Her taxes got too complicated for me to help her with, and she has had trouble finding competent help. Anyway, after an extension she got them finalized this fall. Then the IRS sent her a substantial amount back for no apparent reason. No letter, no explanation. She called them today and they told her it was interest on her overpayment of estimated taxes. I have never heard of this before. She sent me a fascinating article (it is a recommendation but I guess they implemented it?) it is from taxpayeradvocate@irs.gov -
Legislative Recommendation #32
Pay Interest to Taxpayers on Excess Payments of Estimated Tax to the Same Extent Taxpayers Must Pay a Penalty on Underpayments of Estimated Tax
There are at least three good reasons for the government to pay interest on excess estimated tax payments. First, it would be reciprocal and fair. The government effectively charges interest on estimated tax underpayments. It seems one-sided that it does not pay interest on excess payments of estimated tax.
Second, paying interest could improve voluntary tax compliance. Experts advise taxpayers that it is foolish to make excess estimated tax payments because they are, in effect, giving the government an interest-free loan. But it is difficult for taxpayers to estimate exactly how much they should pay. A telephone survey found approximately two-thirds of individual taxpayers with balances due did not plan to owe a balance upon filing. Taxpayers who owe a balance upon filing are more likely than others to understate their tax liabilities.
Third, paying interest would encourage savings and encourage taxpayers to pay their tax obligations during the year that the income is earned. Paying interest on excess estimated tax payments would make it easier for taxpayers to save without buying bonds. If encouraging overpayments increases tax refunds, it could increase savings, which is an independent tax policy goal.
Legislative Recommendation #32
Pay Interest to Taxpayers on Excess Payments of Estimated Tax to the Same Extent Taxpayers Must Pay a Penalty on Underpayments of Estimated Tax
There are at least three good reasons for the government to pay interest on excess estimated tax payments. First, it would be reciprocal and fair. The government effectively charges interest on estimated tax underpayments. It seems one-sided that it does not pay interest on excess payments of estimated tax.
Second, paying interest could improve voluntary tax compliance. Experts advise taxpayers that it is foolish to make excess estimated tax payments because they are, in effect, giving the government an interest-free loan. But it is difficult for taxpayers to estimate exactly how much they should pay. A telephone survey found approximately two-thirds of individual taxpayers with balances due did not plan to owe a balance upon filing. Taxpayers who owe a balance upon filing are more likely than others to understate their tax liabilities.
Third, paying interest would encourage savings and encourage taxpayers to pay their tax obligations during the year that the income is earned. Paying interest on excess estimated tax payments would make it easier for taxpayers to save without buying bonds. If encouraging overpayments increases tax refunds, it could increase savings, which is an independent tax policy goal.
