What Happens if You Overpay the IRS?

When you file your taxes, you may end up paying more than you owe. This is known as an overpayment. The IRS will automatically refund the overpaid amount, but you can also choose to apply it to your next year’s taxes.

What are the options for an overpayment?

Taxpayers can choose to:

• Apply any portion of their overpayment to the following tax year
• Receive all or part of their refund using direct deposit
• Receive all or part of their refund as a check
• Purchase Series I Savings Bonds

How do I apply part of the overpayment to the following year?

To apply a portion of your overpayment to next year’s taxes, enter the amount you want to apply on the applicable line of Form 1040. By doing this, you are electing to apply all or a portion of the current year’s overpayment to next year’s estimated tax.

How do I indicate that the entire refund should be sent to me?

If you want the entire refund sent to you, leave the line for amount applied to estimated tax blank or enter 0.

What are a taxpayer’s refund options?

Taxpayers may choose to have their refund deposited directly into their account at a bank, credit union, or other financial institution, or to a prepaid debit card or IRA. Direct deposits are usually received within three weeks of return acceptance. Taxpayers may choose to have a refund check mailed to them. Refund checks are usually mailed within 6 to 8 weeks after the return is filed. In addition, taxpayers can request that their refund be deposited directly into a TreasuryDirect online account to buy U.S. Treasury marketable securities and savings bonds.

What are the benefits of direct deposit?

The IRS encourages taxpayers to use direct deposit because it is faster than receiving a check (usually within 10 to 21 days) and eliminates the possibility of a check being lost or stolen. Direct deposit is more convenient for the taxpayer and saves tax dollars because it costs less to process.

How do I enter the information for direct deposit?

Make sure you show proof of your bank account and routing information, such as a check. Bank deposit slips are not a reliable source for routing and account numbers for direct deposit. Enter the account number from left to right, but omit spaces and symbols.

Can the refund be deposited into more than one account?

Taxpayers may choose to have their refund deposited in up to three accounts. For example, a person expecting a refund of $600 could choose to deposit $200 into a checking account, $300 into a savings account, and $100 into an IRA account.

What if the taxpayer makes a mistake on the return that increases the amount of the refund?

The IRS recommends using electronic filing to avoid math errors and other common problems that can require adjustments to a return after it is filed. If an adjustment results in a larger refund than expected, the IRS adds the difference to the last account designated for direct deposit.

What if the taxpayer makes a mistake on the return that decreases the amount of the refund?

If an adjustment results in a smaller than expected refund, the IRS uses a bottom-up rule and deducts the difference from the direct deposit amount designated for the last account shown on Form 8888. If the difference exceeds the amount designated for the last account, the IRS deducts the remainder from the amount designated to the next account, until the amount due is paid.

What happens if the taxpayer owes other debts like student loans or child support?

If the refund is decreased due to an offset to pay state income tax, child support, or certain federal nontax debts, such as student loans, then the decrease will be taken first from the account that appears first on the payment file received from the IRS. The IRS payment file orders accounts from the lowest to the highest routing number. If the debt exceeds the payment designated for the account that appears first on the payment file, the Treasury Department’s Financial Management Service (FMS) will reduce the payment designated for the account that appears next.

What should I watch out for?

• Double-check the RTN of the financial institution before the return is transmitted if:

  • You are unfamiliar with the financial institution.
  • The RTN is for a credit union that is payable through another financial institution. Taxpayers should contact their credit union for the correct RTN.

• If more than one account is selected for direct deposit, be sure that the amounts on Form 8888 equal the refund amount on Form 1040.