Where do we specify type of bank account CHECKING or SAVINGS for direct debit?

[SelvamTax]

In my 2021 return e-filed thru Turbo Tax software, as I needed to pay to IRS, I specified my Checking account number and routing number of my bank correctly to do direct ACH debit. However, IRS claimed it from my Savings account (account number is different) from the same bank, since IRS claimed it from SAVINGS and there was insufficient balance, the bank dishonored it. However, I made the payment due just one day late on 4/19/2022. Now IRS sent me a letter to collect penalty of $ 99.74 (now interest added totaling $100.29) for not paying the amount on the due date 4/18/2022.

According to IRS since Savings was selected instead of Checking.

According to Bank, even though incorrect account for Savings, since IRS specified Savings, they dishonored it.

According to me, I provided Checking account, and Turbo tax should have selected the Checking while e-filing.

In this connection, on the tax return printed copy of 2021 (1040) I don't see the type of account we specify to make Direct Debit.  How can I confirm the type of account (Savings or Checking) that I chose/specified/radio button selected to make Direct Debit. Turbo tax experts please clarify.

[DoninGA]

Download the PDF of your 2021 tax return to include all worksheets.

On the Federal Information Worksheet in Part V will be the bank routing number, account number and the type of account you selected to pay the taxes owed.

To access your current or prior year online tax returns sign onto the TurboTax website with the User ID you used to create the account - https://myturbotax.intuit.com/

When you sign onto your online account and land on the Tax Home web page, scroll down and click on Add a state. 

This will take you back to the 2021 online tax return.

Click on Tax Tools on the left side of the online program screen.  Then click on Print Center.  Then click on Print, save or preview this year's return.  Choose the option Include government and TurboTax worksheets

[NCperson]

@SelvamTax - interesting..... is this a Bank or a Credit Union?

the only reason I am asking (and really for my own interest) is that my understanding is that whether Checking or Savings is checked, if it is a Bank, it's not going to matter as the Bank will process the debit.   If it is a Credit Union, then it's important to check the correct type of account, or bad thing happen. 

if you state this is a Bank, then what I have been told in the past is not correct

this is really an issue between you and your financial institution.  Sounds like their ACH rules are to do a match on the account number and account type before accepting the debit.  Did you talk to the bank on what their policy is? 

[SelvamTax]

Please see on the Electronic Filing Instructions page there is no mention of the type of Account either Savings or Checking.

Balance | Your federal tax return (Form 1040) shows a balance due of $4,987.00.
Due/Refund | Your return shows you have elected to pay your balance due of
| $4,987.00 by Direct Debit using the following information:
| - Amount Withdrawn: $4,987.00
| - Account Number: [removed]
| - Routing Transit Number: [removed]
| - Date of Withdrawal: 04/18/2022

The account # ****2711 provided above belongs to the account type Checking, and routing number of the bank  belongs to a Credit union (not a bank).

Conclusion:

1. It appears Turbo tax doesn't provide the Account Type to IRS for the Direct Debit.

2. Since No Account Type was mentioned on the e-file, probably IRS simply claimed it from Savings account type.

3. The Credit Union, without verifying the account number if it matches to the account type or not, simply dishonored the payment to IRS.

Ultimately IRS has charged me the penalty of $ 100.29.  How can I recover the amount from Turbo Tax?

[SelvamTax]

It is a Credit Union, and not a bank. 

Further,  there is no mention of account type on the 1040 form for Direct Debit, I WONDER WHY?

Balance | Your federal tax return (Form 1040) shows a balance due of $4,987.00.
Due/ |
Refund | Your return shows you have elected to pay your balance due of
| $4,987.00 by Direct Debit using the following information:
| - Amount Withdrawn: $4,987.00
| - Account Number: [removed]
| - Routing Transit Number: [removed]
| - Date of Withdrawal: 04/18/2022

The account # ****2711 provided correctly  ABOVE belongs to the account type Checking, and routing number of the bank  belongs to a Credit union (not a bank).

[SelvamTax]

Yes, I called the Credit Union and they said since IRS claimed the amount from Savings, and no Savings type for that account number, they dishonored it.

[SweetieJean]

Some credit unions will not allow direct debits from share accounts.

[NCperson]

@SelvamTax - while it may not have printed out on the summary sheet whether this is a savings account or checking account, I suspect if you go back into the software itself, Turbo Tax asked for the type pf account.

I only have the desktop software, but I just reviewed it and Turbo Tax certainly asked for the type of account.  I also use another software (Taxslayer) for community outreach, and IT asks for the type of account as well.

I would be SHOCKED if the online version of Turbo Tax doesn't ask for it (and there would be a lot of complaints on these boards) because as I stated above, it is my understanding, and your experience supports it, that if you choose the incorrect type of account and your institution is a Credit Union,  the transaction will not be honored.  (this is true for direct deposit as well)

I bet if you go into the TT online software itself, the Saving account type was clicked.  It's inadvertant, but it  occurs (I've done it myself doing community outreach - that is why I knew about this). This is also why when I complete tax returns for myself or others, I NEVER set the direct debit date for the same date as the tax deadline - in case something like this occurs.  Lesson Learned. 

I am very sorry. 

[NCperson]

@SweetieJean -- which credit unions won't permit direct debits from share accounts. Can you please provide a list to the Community?

Can't imagine in this day and age a financial instiution that doesn't permit direct debits can stay in business

[SelvamTax]

I believe it definitely has check boxes for account Type when there is REFUND for Direct Deposit (see below), but not for TAX DUE  by Tax payer for Direct Debit/ACH 

Refund 34 If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid . . 34
35a Amount of line 34 you want refunded to you. If Form 8888 is attached, check here . . . a 35a
Direct deposit?
See instructions.
a b Routing number a c Type: Checking Savings
a d Account number
36 Amount of line 34 you want applied to your 2022 estimated tax .. a 36

I got the Turbo Premier CD from COSTCO and used it for the first time, and faced this issue. If at all the Account type was asked by the software, I would have chosen Checking only where I kept enough money to pay tax dues (NOT Savings) .

By the way, what adverse implications are there if we set the Direct Debit date as 4/18/2022? If we don't make payment on the due date, won't IRS charge interest on the amount due?  After learning the payment didn't go through on 4/18/2022, I settled the full amount $4987 on 4/19/2022 by login to IRS website just one day after due date, but still the penalized me for dishonor of  Direct Debit the penalty now is $ 100.29 

[SelvamTax]

I did not say that the Credit union didn't allow Direct Debit. It allows, but it did not cross check whether the account number I provided is type Checking and NOT Savings. Credit Union said since IRS  mentioned Savings type, they dishonored it for insufficient funds in it.

[SweetieJean]

@NCperson I don't have a list, but am relying on posts from other users' personal experiences.

[SweetieJean]

@NCperson Here's an example:

State Employees' Credit Union - Share (ncsecu.org)

[NCperson]

@SweetieJean - but a 'share' account is a form of savings account and the OP was discussing a checking account.  

The point is from my personal experience - is that for Credit Unions, it is an imperative to tag the account as either checking or savings correctly .  The ACH transaction will fail if the incorrect one is chosen, whether that is a direct deposit or a direct debit. It's not a function of how a particular Credit Union chooses to operate, it's how the whole network operates. 

For the Banking system, even though they use the same ACH trtansmission system as the Credit Unions (which is separate from the Banking System),  I've never experienced a client to have an issue, regardless of whether checking or saving was incorrectly tagged, with a reject of either a direct deposit or a direct debit on the basis of an incorrect account type. 

[SelvamTax]

So it appears the best option for future direct debit or credit from IRS is to switch account from Credit union to a BANK. 

Be that as it may, for no fault of mine, I ended up paying the penalty of $100.29...

- TurboTax did not inform IRS about the type of account (since there is no mention of it on the return). How can I pass on/claim the penalty to Turbo tax?

- Per Credit union IRS claimed it as Savings, so dishonored it, it was not prudent/negligent to cross check the type and account number to confirm 

- IRS penalized the tax payer for just 1 day delay. Had I chosen paper filing and attached the check of Checking account and mailed it on 4/18/2022, my checking account would have been debited after a week or so

Alternately, I will state all the above to IRS and file Form 843 for abatement, let us see.