Extra Estimated Tax Payments - A Mystery (SOLVED - Nanny Tax Payments)

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Sic Vis Pacem
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Extra Estimated Tax Payments - A Mystery (SOLVED - Nanny Tax Payments)

Post by Sic Vis Pacem »

Hello Bogleheads-

I have a curious situation I am hoping someone here may be able to help me solve. This year I received a CP24 with my refund, which indicated a significantly higher refund than I was anticipating based on my completed tax return, prepared with TurboTax. The notice indicated a number of estimated tax payments in 2021 and 2022 that, as far as I can tell, I did not make. Each payment is on the correct estimated tax filing dates. Each is for different amounts (with up to a $1k variance between them), and they are not round numbers.

I checked each payment against my bank records, and I have no outgoing records that match these payments. I thought it possible I somehow automated these, but for the life of me I cannot construct a story that makes the differing amounts make sense (nor could they come from any other account than my main checking account). My tax transcript record is showing another estimated tax payment last month that I am absolutely certain I did not make.

I visited the IRS website, but cannot see anything that would allow me to show the transaction history with any more detail than the date and amount of payment. I cannot see anything that would enable me to determine where these payments originated. The CP24 has an "IRS payment locator number," but I'm not seeing anything that gets me any more detail using that. I do not have terribly complicated taxes- W2 income, 3(ish) fund portfolio, some modest tax loss harvesting, but nothing esoteric. And while life is good, the amount of these payments are enough that I certainly would have noticed these amounts going out of my main checking account throughout the year.

I'm not one to look a gift horse in the mouth, but I have to assume this is going to cause me a headache down the road, either in cleaning up my taxes or as the weirdest prelude to fraud I've ever seen.

I assume the next step is to call the IRS. But I had to do that in conjunction with my filing this year, and it took me months of calling twice a day to get someone on the line. If I have any options short of that, I was hoping someone here might have thoughts. At any rate, I'll be hiring a professional to prepare my return next year just to give everything a second look.

My thanks.
Last edited by Sic Vis Pacem on Mon May 09, 2022 1:11 pm, edited 2 times in total.
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MP123
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Re: Extra Estimated Tax Payments - A Mystery

Post by MP123 »

Did you make any estimated payments other than these mysterious ones? It might be worth checking on eftps.gov if you made them online, you can see the payment history there.

If not then it sounds like a problem at the IRS. Hard to say if they'll figure it out and demand that you repay the excess but it will probably take a while.
Topic Author
Sic Vis Pacem
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Re: Extra Estimated Tax Payments - A Mystery

Post by Sic Vis Pacem »

MP123 wrote: Mon May 09, 2022 12:01 pm Did you make any estimated payments other than these mysterious ones?
I did in 2019, which all show up on my transcript accurately. In 2020 (and again in 2021), I adjusted my withholdings to avoid needing them going forward. I'll check eftps, thank you.
lstone19
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Re: Extra Estimated Tax Payments - A Mystery

Post by lstone19 »

Sounds like someone made estimated payments with the wrong SSN.

Assuming this was a direct deposit refund or you've already cashed the check, I would set the part you don't deserve in a separate account and the write to the IRS (no sense wasting your time on the phone trying to solve someone else's mistake). So long as you set the money aside, I doubt you'll have any problems since doing so indicates clear intent not to spend the money and shows that you recognized the problem.
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MP123
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Re: Extra Estimated Tax Payments - A Mystery

Post by MP123 »

Sic Vis Pacem wrote: Mon May 09, 2022 12:06 pm
MP123 wrote: Mon May 09, 2022 12:01 pm Did you make any estimated payments other than these mysterious ones?
I did in 2019, which all show up on my transcript accurately. In 2020 (and again in 2021), I adjusted my withholdings to avoid needing them going forward. I'll check eftps, thank you.
It's possible that someone set up an account on eftps and used your SS number by mistake resulting in their estimated payments from their bank going to your IRS account. If so that person is probably not too happy right now and trying to clear things up on their end.
bismarck23
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Re: Extra Estimated Tax Payments - A Mystery

Post by bismarck23 »

Do you have a household employee, or otherwise have someone on payroll? Payroll taxes flow through your personal return, via Schedule H and estimated tax payments. The same thing happened to me:

viewtopic.php?t=372991
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celia
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Re: Extra Estimated Tax Payments - A Mystery

Post by celia »

Were you married or have dépendants during that time?

If not, my guess is that someone is using your SSN and name to be able to work, else there is a typo in someone’s data entry somewhere. I would start by checking my credit reports, adding a fraud alert, and locking your credit reports.
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retiredjg
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Re: Extra Estimated Tax Payments - A Mystery

Post by retiredjg »

You said you received a CP 24 letter. Is there a phone number there that might be a more direct line? A specific address to send a letter? Did the CP 24 ask you questions or just explain why you got the refund?

Love a good mystery!
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retiredjg
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Re: Extra Estimated Tax Payments - A Mystery

Post by retiredjg »

This might be helpful.

https://www.irs.gov/individuals/underst ... p24-notice

What should I do if there is a payment listed on the notice that I didn’t make?
Call us at the number on your notice. You'll need to return any refund you receive by mistake. See Tax Topic 161 - Returning an Erroneous Refund – Paper Check or Direct Deposit.
Topic Author
Sic Vis Pacem
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Re: Extra Estimated Tax Payments - A Mystery

Post by Sic Vis Pacem »

bismarck23 wrote: Mon May 09, 2022 12:14 pm Do you have a household employee, or otherwise have someone on payroll? Payroll taxes flow through your personal return, via Schedule H and estimated tax payments. The same thing happened to me:

viewtopic.php?t=372991
I do have a nanny on payroll, and have for several years. I've used the same nanny payroll service and tax prep software each year. Any chance you could PM me and advise what I might need to look for on Schedule H?
bismarck23
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Re: Extra Estimated Tax Payments - A Mystery

Post by bismarck23 »

Sic Vis Pacem wrote: Mon May 09, 2022 12:22 pm
bismarck23 wrote: Mon May 09, 2022 12:14 pm Do you have a household employee, or otherwise have someone on payroll? Payroll taxes flow through your personal return, via Schedule H and estimated tax payments. The same thing happened to me:

viewtopic.php?t=372991
I do have a nanny on payroll, and have for several years. I've used the same nanny payroll service and tax prep software each year. Any chance you could PM me and advise what I might need to look for on Schedule H?
*ding* *ding* *ding* I think we have a winner! PM sent.
Topic Author
Sic Vis Pacem
Posts: 225
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Re: Extra Estimated Tax Payments - A Mystery

Post by Sic Vis Pacem »

bismarck23 wrote: Mon May 09, 2022 12:32 pm
Sic Vis Pacem wrote: Mon May 09, 2022 12:22 pm
bismarck23 wrote: Mon May 09, 2022 12:14 pm Do you have a household employee, or otherwise have someone on payroll? Payroll taxes flow through your personal return, via Schedule H and estimated tax payments. The same thing happened to me:

viewtopic.php?t=372991
I do have a nanny on payroll, and have for several years. I've used the same nanny payroll service and tax prep software each year. Any chance you could PM me and advise what I might need to look for on Schedule H?
*ding* *ding* *ding* I think we have a winner! PM sent.
Well, I missed schedule H this year. Cannot believe it, but it was a hectic start to the year. I need to amend, and will update the thread to reflect the mystery as solved!

Thank you, everyone, for the assist, and to bismarck23 for the correct answer. This community never disappoints.
MarkNYC
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Re: Extra Estimated Tax Payments - A Mystery

Post by MarkNYC »

Sic Vis Pacem wrote: Mon May 09, 2022 12:39 pm
bismarck23 wrote: Mon May 09, 2022 12:32 pm
Sic Vis Pacem wrote: Mon May 09, 2022 12:22 pm
bismarck23 wrote: Mon May 09, 2022 12:14 pm Do you have a household employee, or otherwise have someone on payroll? Payroll taxes flow through your personal return, via Schedule H and estimated tax payments. The same thing happened to me:

viewtopic.php?t=372991
I do have a nanny on payroll, and have for several years. I've used the same nanny payroll service and tax prep software each year. Any chance you could PM me and advise what I might need to look for on Schedule H?
*ding* *ding* *ding* I think we have a winner! PM sent.
Well, I missed schedule H this year. Cannot believe it, but it was a hectic start to the year. I need to amend, and will update the thread to reflect the mystery as solved!

Thank you, everyone, for the assist, and to bismarck23 for the correct answer. This community never disappoints.
If you omitted Schedule H from your tax return, that means you understated your total tax on your 1040. But federal estimated tax payments are not reported on Schedule H, so the omission of Schedule H does not explain why the IRS has credited you with more estimated tax payments than you have a record of. Some nanny payroll companies send in estimated tax payments on behalf of the taxpayer in order to cover the anticipated Schedule H tax. These estimated payments submitted by the payroll company sometimes get overlooked and not reported on the 1040, resulting in an unexpected refund. I suspect this is what happened here, which is related to, but separate from, the omission of Schedule H.
bismarck23
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Re: Extra Estimated Tax Payments - A Mystery

Post by bismarck23 »

MarkNYC wrote: Mon May 09, 2022 3:12 pm
Sic Vis Pacem wrote: Mon May 09, 2022 12:39 pm
bismarck23 wrote: Mon May 09, 2022 12:32 pm
Sic Vis Pacem wrote: Mon May 09, 2022 12:22 pm
bismarck23 wrote: Mon May 09, 2022 12:14 pm Do you have a household employee, or otherwise have someone on payroll? Payroll taxes flow through your personal return, via Schedule H and estimated tax payments. The same thing happened to me:

viewtopic.php?t=372991
I do have a nanny on payroll, and have for several years. I've used the same nanny payroll service and tax prep software each year. Any chance you could PM me and advise what I might need to look for on Schedule H?
*ding* *ding* *ding* I think we have a winner! PM sent.
Well, I missed schedule H this year. Cannot believe it, but it was a hectic start to the year. I need to amend, and will update the thread to reflect the mystery as solved!

Thank you, everyone, for the assist, and to bismarck23 for the correct answer. This community never disappoints.
If you omitted Schedule H from your tax return, that means you understated your total tax on your 1040. But federal estimated tax payments are not reported on Schedule H, so the omission of Schedule H does not explain why the IRS has credited you with more estimated tax payments than you have a record of. Some nanny payroll companies send in estimated tax payments on behalf of the taxpayer in order to cover the anticipated Schedule H tax. These estimated payments submitted by the payroll company sometimes get overlooked and not reported on the 1040, resulting in an unexpected refund. I suspect this is what happened here, which is related to, but separate from, the omission of Schedule H.
I think OP made the same mistake I did, which is omitting both Schedule H and the estimated tax payments from payroll from my federal return. When I first filed, the IRS sent me a mystery refund check for the estimated taxes, before they realized the Schedule H was missing. Fortunately I figured out the problem before they did, and amended my return in late April with no net change in taxes owed (well, $1 more due to rounding). If OP does similar he should be fine.
MarkNYC
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Re: Extra Estimated Tax Payments - A Mystery

Post by MarkNYC »

bismarck23 wrote: Mon May 09, 2022 10:19 pm
I think OP made the same mistake I did, which is omitting both Schedule H and the estimated tax payments from payroll from my federal return. When I first filed, the IRS sent me a mystery refund check for the estimated taxes, before they realized the Schedule H was missing. Fortunately I figured out the problem before they did, and amended my return in late April with no net change in taxes owed (well, $1 more due to rounding). If OP does similar he should be fine.
You may be right. But not everyone who files Schedule H has estimated taxes submitted by the nanny payroll company. The OP admits to omitting Schedule H but said nothing about omitting estimated payments, so it's not clear the OP has a full understanding of the issue.

In your case, if your amended return showed $1 owed, that suggests you sent back to the IRS the "mystery" refund check, either with the amended return or separately. I think that was a mistake. The refund check was not erroneous - it was correct and accurate based on the original tax return that was filed. You should have cashed the check then filed an amended return to pay the additional Schedule H tax. Line 18 of Form 1040-X should have included the additional refund check you received.

If you handled the situation the way I described, it may work out okay, but I think there's a good chance you'll be receiving some IRS correspondence on this matter.
bismarck23
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Re: Extra Estimated Tax Payments - A Mystery

Post by bismarck23 »

MarkNYC wrote: Tue May 10, 2022 9:19 am
bismarck23 wrote: Mon May 09, 2022 10:19 pm
I think OP made the same mistake I did, which is omitting both Schedule H and the estimated tax payments from payroll from my federal return. When I first filed, the IRS sent me a mystery refund check for the estimated taxes, before they realized the Schedule H was missing. Fortunately I figured out the problem before they did, and amended my return in late April with no net change in taxes owed (well, $1 more due to rounding). If OP does similar he should be fine.
You may be right. But not everyone who files Schedule H has estimated taxes submitted by the nanny payroll company. The OP admits to omitting Schedule H but said nothing about omitting estimated payments, so it's not clear the OP has a full understanding of the issue.

In your case, if your amended return showed $1 owed, that suggests you sent back to the IRS the "mystery" refund check, either with the amended return or separately. I think that was a mistake. The refund check was not erroneous - it was correct and accurate based on the original tax return that was filed. You should have cashed the check then filed an amended return to pay the additional Schedule H tax. Line 18 of Form 1040-X should have included the additional refund check you received.

If you handled the situation the way I described, it may work out okay, but I think there's a good chance you'll be receiving some IRS correspondence on this matter.
You're correct - I received the refund check before I knew what it was for, assumed it belonged to someone else, and returned it to the IRS. Cashing it without knowing it belonged to me seemed like the wrong thing to do. Then a month later, I realized what it was for, and filed the amended return. The IRS accepted my $1 ACH payment, so I think I should be okay.
MarkNYC
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Re: Extra Estimated Tax Payments - A Mystery

Post by MarkNYC »

bismarck23 wrote: Tue May 10, 2022 11:32 am
MarkNYC wrote: Tue May 10, 2022 9:19 am
bismarck23 wrote: Mon May 09, 2022 10:19 pm
I think OP made the same mistake I did, which is omitting both Schedule H and the estimated tax payments from payroll from my federal return. When I first filed, the IRS sent me a mystery refund check for the estimated taxes, before they realized the Schedule H was missing. Fortunately I figured out the problem before they did, and amended my return in late April with no net change in taxes owed (well, $1 more due to rounding). If OP does similar he should be fine.
You may be right. But not everyone who files Schedule H has estimated taxes submitted by the nanny payroll company. The OP admits to omitting Schedule H but said nothing about omitting estimated payments, so it's not clear the OP has a full understanding of the issue.

In your case, if your amended return showed $1 owed, that suggests you sent back to the IRS the "mystery" refund check, either with the amended return or separately. I think that was a mistake. The refund check was not erroneous - it was correct and accurate based on the original tax return that was filed. You should have cashed the check then filed an amended return to pay the additional Schedule H tax. Line 18 of Form 1040-X should have included the additional refund check you received.

If you handled the situation the way I described, it may work out okay, but I think there's a good chance you'll be receiving some IRS correspondence on this matter.
You're correct - I received the refund check before I knew what it was for, assumed it belonged to someone else, and returned it to the IRS. Cashing it without knowing it belonged to me seemed like the wrong thing to do. Then a month later, I realized what it was for, and filed the amended return. The IRS accepted my $1 ACH payment, so I think I should be okay.
I'm not sure I follow your reasoning. Let's say the mystery refund check you received and then returned to the IRS was $900 (made-up number). And your Schedule H tax which was omitted from the original tax return was $901. Why then did your amended return reporting the Schedule H tax show only $1 owed rather than $901? What do you believe the IRS did with the $900 of your money that you sent back to the IRS telling them it was not your money? Just because the IRS accepted your $1 ACH payment does not mean they won't find a discrepancy in total payments when they eventually process the amended return.
bismarck23
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Re: Extra Estimated Tax Payments - A Mystery

Post by bismarck23 »

MarkNYC wrote: Tue May 10, 2022 11:57 am
bismarck23 wrote: Tue May 10, 2022 11:32 am
MarkNYC wrote: Tue May 10, 2022 9:19 am
bismarck23 wrote: Mon May 09, 2022 10:19 pm
I think OP made the same mistake I did, which is omitting both Schedule H and the estimated tax payments from payroll from my federal return. When I first filed, the IRS sent me a mystery refund check for the estimated taxes, before they realized the Schedule H was missing. Fortunately I figured out the problem before they did, and amended my return in late April with no net change in taxes owed (well, $1 more due to rounding). If OP does similar he should be fine.
You may be right. But not everyone who files Schedule H has estimated taxes submitted by the nanny payroll company. The OP admits to omitting Schedule H but said nothing about omitting estimated payments, so it's not clear the OP has a full understanding of the issue.

In your case, if your amended return showed $1 owed, that suggests you sent back to the IRS the "mystery" refund check, either with the amended return or separately. I think that was a mistake. The refund check was not erroneous - it was correct and accurate based on the original tax return that was filed. You should have cashed the check then filed an amended return to pay the additional Schedule H tax. Line 18 of Form 1040-X should have included the additional refund check you received.

If you handled the situation the way I described, it may work out okay, but I think there's a good chance you'll be receiving some IRS correspondence on this matter.
You're correct - I received the refund check before I knew what it was for, assumed it belonged to someone else, and returned it to the IRS. Cashing it without knowing it belonged to me seemed like the wrong thing to do. Then a month later, I realized what it was for, and filed the amended return. The IRS accepted my $1 ACH payment, so I think I should be okay.
I'm not sure I follow your reasoning. Let's say the mystery refund check you received and then returned to the IRS was $900 (made-up number). And your Schedule H tax which was omitted from the original tax return was $901. Why then did your amended return reporting the Schedule H tax show only $1 owed rather than $901? What do you believe the IRS did with the $900 of your money that you sent back to the IRS telling them it was not your money? Just because the IRS accepted your $1 ACH payment does not mean they won't find a discrepancy in total payments when they eventually process the amended return.
Let me try to clear up any confusion. The sequence of events was this (numbers changed slightly):

Feb 2022: Federal 1040 filed, $60,000 taxes owed and $60,000 payroll withholding, so net refund or tax due. However, I didn't realize nanny payroll flows through personal tax return, so both Schedule H and nanny payroll taxes paid on 1040-ES are omitted from the return.

Mar 2022: IRS sends mysterious $900 refund check. Investigation shows that it was the result of an estimated tax payment credited to my transcript in January 2022. Based on the advice given here and from IRS.gov, I returned the check, uncashed, to the IRS explaining that the estimated payment seems to be an error.

late-April 2022: I realized the mistake and filed an amended return via TurboTax, including both the missing Schedule H and the missing estimated tax payment. Due to rounding errors, the total tax owed is now $60,901 and the total payments (including the estimated payment) are $60,900, so there is a $1 tax owed, which was paid and accepted by ACH. Theoretically I could owe interest on the $1, but two weeks of interest on $1 rounds to zero so I didn't bother.

I just checked my transcript, and it shows Estimated tax payment: -$900.00 in January 2022 (the original estimated payment from payroll), Refund issued: +$900.00 in early March, Refund cancelled: -$900.00 in late March (when they got my uncashed check), and Payment: -$1.00 in late April. It also includes a note of the amended return, and ominously concludes with this line: Additional account action pending. :twisted:

But, I can't imagine what I have to worry about. The only thing I could have done differently was to cash the refund check in March, but the consensus from multiple sources was that it's not a good idea to cash an IRS check you think you're not entitled to. What did the IRS do with the uncashed check when I sent it back? I'm not sure. Probably nothing over that one-month period. Maybe they did some investigation, but if they did it would have turned up that the estimated payment was legitimate, and regardless, they returned the credit back to my transcript. I expect they'll process my amended return and it will zero out. To my knowledge I don't owe them any money, so I can't imagine what I have to worry about.
MarkNYC
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Re: Extra Estimated Tax Payments - A Mystery

Post by MarkNYC »

bismarck23 wrote: Tue May 10, 2022 1:09 pm I just checked my transcript, and it shows Estimated tax payment: -$900.00 in January 2022 (the original estimated payment from payroll), Refund issued: +$900.00 in early March, Refund cancelled: -$900.00 in late March (when they got my uncashed check), and Payment: -$1.00 in late April. It also includes a note of the amended return, and ominously concludes with this line: Additional account action pending. :twisted:

But, I can't imagine what I have to worry about. The only thing I could have done differently was to cash the refund check in March, but the consensus from multiple sources was that it's not a good idea to cash an IRS check you think you're not entitled to. What did the IRS do with the uncashed check when I sent it back? I'm not sure. Probably nothing over that one-month period. Maybe they did some investigation, but if they did it would have turned up that the estimated payment was legitimate, and regardless, they returned the credit back to my transcript. I expect they'll process my amended return and it will zero out. To my knowledge I don't owe them any money, so I can't imagine what I have to worry about.
I agree that in the end there should be no additional net tax due, so nothing to worry about in that sense. But I think the IRS has a somewhat drawn-out process for dealing with returned checks, so it may be overly optimistic to think that the 1040 and 1040-X issues will get fully resolved without some back-and-forth correspondence, which can be potentially protracted and annoying.
Topic Author
Sic Vis Pacem
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Re: Extra Estimated Tax Payments - A Mystery

Post by Sic Vis Pacem »

MarkNYC wrote: Tue May 10, 2022 9:19 am
You may be right. But not everyone who files Schedule H has estimated taxes submitted by the nanny payroll company. The OP admits to omitting Schedule H but said nothing about omitting estimated payments, so it's not clear the OP has a full understanding of the issue.
Thank you for the follow-up. My payroll company does submit the estimated payments on my behalf. I went back through my payroll records and the numbers tie out. Once I followed all the instructions through TurboTax on amending the return to correctly reflect schedule H, the amount I "owe" for the amended return is exactly equal to the mystery refund. So while I'm certain I still do not have a full understanding of the issue, I'm reasonably certain of how to resolve it.
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