Refund withdrawn rather than deposited.

[JorgeArroyo84]

My stepson's girlfriend filed her tax return and thought she was getting a refund. They put my stepson's debit card info in to deposit the refund into. Instead, the IRS withdrew the amount they were supposed to get refunded, causing my stepson to overdraft on his account. Who do they contact in order to sort this out?

[DoninGA]

The direct deposit of the federal tax refund was rejected by the bank since the name on the account was not the name on the federal tax refund.

The refund was sent back to the IRS and the IRS will send a refund check in the mail to the address on the tax return.

[Opus 17]

You can't make a deposit into someone else's bank account.

Make sure you clarify what happened.  Did the deposit show up, and then disappeared?  Or was other money separately removed?

What you need to know is that an ACH direct deposit is a complicated process that generally take 3 business days to settle.  The first step is the sending bank (in this case, the IRS) sends an "advice" to the receiving bank informing them of incoming funds.  Then there are several intermediate steps, and the last step is the sending bank issues final confirmation of sending the money and the receiving bank confirms final receipt (final settlement).

Some banks make funds available on the "advice" even though the transaction is not actually settled.  So if the bank got advice of a deposit and made funds available, but the transaction never settled because the IRS learned that the account holder's name and SSN are different from the taxpayer, then the debit card bank will take back the money (because it was never really there).  In this case, your son spent his refund before it settled, the bank took it back, and there is nothing he can do.  The girlfriend should receive a check in 4 weeks, and she can pay your son back.

Now, it's also possible that the debit card bank made a mistake, if the deposit never settled AND they sent extra funds back to the IRS.  In that case, complain to the debit card bank.  The IRS does not withdraw funds.  (The IRS might fail to settle a deposit after the advice, but that's just the IRS not sending the funds, its not the same as a withdrawal.)

[Critter-3]

Was there  actually a balance due  and not a refund ?  If so the IRS will happily take the money from any account listed on the return filing.   

[JorgeArroyo84]

@DoninGA In the past I've had this same stepson's refunds come directly to me and it went through without any issue. I can see that they might reject the refund based on the name, yet that doesn't explain why they put him in the hole for $1400 now. If anything, his account should be back to what it was before the refund, but they instead took out this amount and caused him to overdraft. That's why I'm confused and no matter what, he and the girlfriend are out $1400 because they have to pay the bank back. Do they have to go to the IRS for this issue?

[JorgeArroyo84]

@Opus 17 I've never had an issue with refund deposits going to another. In the past, my stepson's refunds have gone straight to me without any issue. The main issue is the overdrafting. Okay, maybe they no longer send the refund to someone else's account, so why did they 'withdraw' the refund, putting him in the hole? 

[Critter-3]

First the IRS will debit or deposit to any account you list on the return it is banking policy to not allow persons not on the account to use the account and usually block deposits for non account holders ... this is up to the individual bank's rules. 

Now just a guess ... $1400 is the exact amount of the stimulus credit so was that on the return incorrectly ?  If he got the advance he does not also get the credit.  Did the IRS deposit all of the expected refund then recall only $1400 of it ?  Did they see the pending deposit and spend it  like it was posted (not good judgement ever) ?  Then  find out  all of the anticipated deposit was not allowed  which caused the overdraft ?  Until the pending deposit is actually posted the IRS can make a change to the amount to be deposited  or withdraw the deposit altogether. 

Check with the bank to see what happened  and with the IRS to see what they actually did.