Ask the Tax Editor, April 17: Questions on Tax Refunds and Penalties

In this week's Ask the Editor Q&A, Joy Taylor answers four questions on tax refunds, how to get the IRS to abate a penalty and related topics. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Delivered dailyKiplinger TodayProfit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. 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This week, she's looking at four questions on tax refunds, how to get the IRS to abate a penalty and related topics. (Get a free issue of The Kiplinger Tax Letter or subscribe.)Question: I helped my granddaughter prepare her tax return and claim a refund. I filed her 2025 Form 1040 using the same bank account information shown on her 2024 Form 1040. However, I was unaware that my granddaughter had changed banks. How do I notify the IRS of her correct bank account information?Joy Taylor: The best answer to your question comes directly from the IRS. The IRS has a web page that answers the question "what should I do if I entered an incorrect routing or account number for direct deposit of my refund?"For example, if a taxpayer omits a digit in the account or routing number of an account and the number doesn't pass the IRS's validation check, then the IRS says it will send you a notice asking for more information. Note that if you catch the bank account error early enough, before the return has been posted to the IRS's system, then you can call the IRS on their 1-800 line and ask the agency to stop the direct deposit. Here is more information directly from the IRS on what you can do:"Generally, if the financial institution recovers the funds and returns them to the IRS, the IRS will send you a notice providing the next steps."Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail."If you have contacted the financial institution and 5 calendar days have passed with no deposit, you will need to file IRS Form 3911, Taxpayer Statement Regarding Refund, to initiate a trace. This allows the IRS to contact the bank on your behalf to attempt recovery of your refund. Banks are allowed up to 90 days from the date of the initial trace input to respond to our request for information, but it may take up to 120 days for resolution.""If funds aren't available or the bank refuses to return the funds, the IRS cannot compel the bank to do so. The case may then become a civil matter between you and the financial institution and/or the owner of the account into which the funds were deposited."Question: I have a bank account, but I don't like using it for electronic payments or receipts. I filed my 2025 Form 1040, which claimed a refund. I didn't include my bank account information on the return because I want to receive my refund as a paper check. I got a letter from the IRS asking for my bank account information. What can I do if I still want a paper check? Joy Taylor: The IRS is in the process of phasing out paper refund checks in accordance with President Trump's March 2025 executive order. Individuals who request paper refund checks when filing their Form 1040 are seeing their refunds delayed. The IRS is mailing letters to filers whose 1040s claim a refund but omit bank account details for direct deposit. These notices ask the filers to supply their bank account information within 30 days or say why they can’t. I am guessing this is the letter that you received from the IRS.If you don't respond to the IRS notice, you will eventually get your refund check in the mail, but it will take time. According to the IRS, it will issue a paper check to nonresponders six weeks after the date it sent the original notice.Question: I am filing my 2025 Form 1040, and I know I am going to owe an underpayment penalty. How does the IRS calculate this penalty?Joy Taylor: Generally, taxpayers will escape the underpayment penalty if they prepay, through estimated tax payments or withholding, at least 90% of their current-year total tax bill or 100% of what they owed for the prior year (110% if prior-year adjusted gross income exceeded $150,000). Taxpayers who owe an underpayment penalty use IRS Form 2210 to calculate the amount owed. I am aware that calculating the underpayment penalty can be confusing.The IRS calculates the underpayment penalty based on the tax shown on your original return or on a more recent return that you filed on or before the due date. The tax shown on the return is your total tax minus your total refundable credits. The IRS calculates the penalty based on: (1) the amount of the underpayment, (2) the period when the underpayment was due and underpaid, and (3) the unpublished quarterly interest rates for underpayments.Note that the IRS also charges interest on the underpayment penalties.Question: For the first time ever, I am going to have to file my Form 1040 late. I know I will end up owing taxes when I file the return. Will the IRS be lenient in assessing penalties since I have always been tax-compliant?Joy Taylor: You may be in luck. The IRS has a little-known first-time penalty abatement policy. It will approve a waiver of the late-filing and late-payment penalties for filers who pay or arrange to pay the tax due and have been tax-compliant for the past three years. The penalties for late payroll-tax deposits and delinquent returns of S corporations or partnerships are also eligible for the waiver if the conditions are satisfied. But the estimated-tax penalty (also called the underpayment penalty) doesn't qualify for this penalty abatement program.You may have to request the waiver. If you get a notice from the IRS showing a late-payment or late-filing penalty due but not abated, follow the instructions in the letter or call the phone number on the notice. The IRS has said that it will begin to automatically provide first-time penalty abatement to taxpayers who qualify for relief, starting with 2025 tax returns filed this year. But I am not sure whether the IRS has yet implemented this automatic procedure.Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.