How My Tax Preparation Software Let Me Down

July 22, 2015

For the last seven years, I have used tax preparation software to help me file my federal and state income tax returns, and I’ve never had a problem…until now. You see, each year I’ve been entitled to tax refunds, and each year when the tax preparation software asks me if I want to have my tax refund directly deposited into my bank account, I would say yes, but this year was different. This year, instead of getting a tax refund from the state, I ended up owing the state more money, so instead of asking me if I wanted my tax refund directly deposited into my bank account the software asked me if I wanted to have my tax payment debited from my account. 

This seemed like a logical question. After all, the software had my bank account information on file and I make electronic payments to other creditors all the time—so I said yes. A few clicks later and my tax returns were finished. I filed them electronically and had confirmation within 24 hours that my returns had been accepted. I turned off the computer, patted myself on the back, and closed the books on another tax year—or so I thought.

Last week, I received a letter from my state’s department of revenue informing me that they had not yet received my tax payment. I thought for sure that there must have been a mistake, but after a review of my bank statements, I concluded that I had not, in fact, made a payment. As you can imagine, this irked me greatly.

For starters, I thought my tax concerns were over back in February when I filed my returns, but more importantly, I thought I had taken care of it when I elected to have the payment taken directly from my checking account. I was sure the software had my correct information on file, and I remember clearly electing to have the taxes paid from the account because it was the first time I was ever asked the question. You kind of remember quirks like that when they happen, so what went wrong?

Well, as I began to dig into things, I discovered that not all states accept payment instructions through third-party agents, including mine. That means that I needed to make the payment directly to the department of revenue, either electronically or by mailing a check, but I couldn’t have the tax preparation software instruct the state to debit my account. As a result, not only did I still owe the state income taxes, but now I owed late-payment penalties and interest. So much for using software to help prepare my taxes!

Even worse, when I attempted to contact the software vendor to discuss the issue, I could find no contact information—just links to an online forum where other taxpayers have posted questions. I felt mislead. I’m of the opinion that the developers of the tax preparation software should know that my state does not accept payment instructions, so why even offer it as an option? And if they are going to offer it as an option, they should at least make a disclaimer telling taxpayers that some states don’t accept payment instructions and to check with their state’s department of revenue for acceptable means of making payments. At least then the taxpayer has a warning.

But ultimately, in the end, it’s my fault. As a taxpayer, it is my responsibility to make sure my returns are completed and submitted on time, and that any money owed is paid on time. As unhappy as I am right now with the makers of the software, I’m the one who blindly trusted in the process, and I’m the one who accepted the risks.  This is why some taxpayers choose to have a tax professional prepare their returns. I’m not trying to absolve the software company, but I am taking responsibility for what it means to be a taxpayer.

When I saw my federal tax refund hit my account, I noticed that the state tax payment had not been made yet. I figured that the state was taking longer to review the returns and that the payment would be made once the return had been processed. In hindsight, that doesn’t make a lot of sense, and it should have clued me in to the fact that there might be a problem.

I’ve since paid the state what I owed, including the penalties and interest. Now I can finally put the 2014 tax year to rest (knock on wood).  If there’s any good that can come from my mistake, let it be that the same thing never happens to you.