Larry Hays pays his taxes on time, filing online and usually receiving a refund.

In 2021, he made a move that would result in a big tax bill, converting a traditional IRA to a Roth IRA. He would owe $32,000 in taxes on the amount he converted, but he would end up with an account that would be tax-free forever.

Knowing that taxpayers who pay significantly less tax during the year may face penalties and interest charges, he paid his federal conversion tax bill in the form of a payment estimated in the fourth quarter before the January 15 deadline.

He thought he was ready, but when he looked at his checking account, he saw that the wrong amount had been withdrawn. There was a debit of $3,200, not $32,000.

“They cut a zero,” said Hays, of Upper Montclair.

Bamboozled reviewed the check from Hays and it was clearly written for the correct amount. It’s a problem. Imagine if instead of not taking enough, an extra zero was added, leaving Hays’ checking account in the negative, short of thousands of dollars.

The mistake left Hays owed several thousand more IRS dollars.

“I went to my Chase branch and explained the problem to them. They told me that when checks are submitted for payment through the ACH system, as was the case, Chase does not receive the check, so they have no way of verifying that an error has been made,” did he declare. “My only recourse is to (contact) ‘the merchant,’ in this case, the IRS.”

Hays said he tried to contact the IRS by phone, but was unable to reach an agent. Of course, it’s busy season for the IRS, and the agency has come under fire for its backlog of millions of 2020 tax returns.

But Hays didn’t want to end up with penalties and interest, and even though the January 15 deadline had now passed, he sent a second check for the remaining amount, along with a letter of explanation and a request that payment is not to be considered late.

“About ten days later, that check was cashed. Whether or not I will be charged a penalty remains to be seen,” he said, adding that he was surprised that Chase did not have a process in place to resolve the error and that the check he has sent for his state tax bill has been processed correctly. . “So I solved the problem – I hope – on my own. But frankly, that doesn’t feel right to me.


The IRS has pushed for taxpayers to file and pay electronically, a process much faster than filing a paper return and mailing a check.

While more than 94% of tax returns were filed electronically for the 2020 tax year, that still leaves millions of taxpayers who used paper last year.

The IRS has stated that when taxpayers provide a check as payment, they authorize the IRS to perform a one-time electronic funds transfer from their account or process the payment as a check transaction.

We asked the IRS exactly how payments are processed to the specific location where Hays sent his check.

Tax returns that involve payment from a taxpayer go into a safe deposit box operated by a bank that acts as a contractor for the IRS, a spokesperson said.

“They take the check and make the deposit, and then they send the documents to the relevant IRS center,” he said.

Since most postal transactions involve paper checks or money orders, PO Box locations use Electronic Check Processing (ECP), a method that converts paper checks into Automated Clearing House (ACH) transactions, according to the Treasury Department’s Office of Tax Services.

The ACH system processed 26.8 billion payments in 2020, according to Nacha, the group that runs the system.

Back to the check.

The IRS bank representative, called a financial officer (FA), would open the envelope and digitally scan any attached checks to capture electronic images.

It is important. We figured if the verification information needed to be entered by a human – instead of scanned – that might have been the source of the error. It’s true that the so-called optical scans could fail, possibly missing that important zero on Hays’ check, but human error would have been far more likely.

“FA then sends all image and data files to ECP for processing,” he said. The images would go to the taxpayer’s bank, which would then settle the transaction electronically, he said.

We asked Chase if anyone at the bank checks the images to make sure they match the electronic payment requests or if someone on the bank side might have entered the dollar figure, inadvertently missing a zero.

Chase said ACH transactions are done with only routing and an account number, so the bank wouldn’t have a copy of the check. There would be no entry of a dollar amount.

All of this leaves a bit of a mystery about what happened to Hays. If neither party entered the numbers, something must have gone wrong with the digital scan. And it seems pretty clear that no one compares check images to submitted amounts.

What can we as consumers learn from all of this? This goes to show that it’s important, even if you’re doing what you think is a paper transaction rather than an electronic one, to closely monitor your bank statement for errors.

And you should consider forgoing checks whenever you have an electronic payment option. If you double-check that you typed the numbers correctly, it’s highly unlikely that something like this could happen to you.

You can learn more about how to pay the IRS electronically here and your New Jersey return can be paid electronically here.

Hays said he normally pays the IRS electronically, and now that he knows he can also pay estimated taxes online, he will do so in the future.

“I think a really interesting question is what would have happened if the amount of the check had been $3,200 and the IRS had tried to debit our account for $32,000,” Hays said.

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Karin Price Mueller can be reached at [email protected]. Follow her on Twitter at @KPMueller.