Last year I e-Filed 2024 federal.
As I was preparing my state return I realized I had made a mistake.
I immediately filed an amended return the next day.
With the original return, I was to get a refund. With the amended return, I owed taxes.
Since I eFiled the amended so quickly, I thought that the IRS would ignore ignore the original return. A few weeks later the refund hit my checking account.
I didn't know how to return the money.
As expected, today I received a letter asking for the money back plus interest. The interest rates they used varied from 6% to 7%. HYSA were paying about 4%.
Anyway. how should I have handled this initially so that I didn't owe all that interest?
Posted by atexit8
2 Comments
Honestly there wasn’t a clean way to avoid it entirely given the timing, but the best move would have been calling the IRS immediately after the refund hit and telling them you had an amended return pending and didn’t want the refund yet. They can sometimes stop or reverse a deposit before it fully processes if you catch it fast enough.
The other option was just setting that refund money aside untouched in your HYSA the moment it landed, knowing you’d owe it back. You’d have lost a little on the interest rate difference between what they charged and what you earned but it would have been a much smaller hit than spending it.
For next time, if you catch a mistake that quickly the IRS actually recommends calling their e-file help line directly rather than waiting on amended return processing, which can take weeks. A phone call the same day might have flagged the account before the refund went out.
The interest is annoying but at least it wasn’t a penalty on top of it.
When you got the initial refund, you should have made a payment at that time for what the amendment calculated you owed back. That would be the way to avoid this high interest bill after so much time.