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How Safe Are Direct Deposit Tax Refunds? Ask Georgia's Taxpayers

Georgia taxpayers saw their refunds disappear from their bank accounts. What happened?Georgia's Department of Revenue is dealing with the fallout of a mistake that's proving costly for some taxpayers.

Several reports out of Atlanta suggest that many people who filed early 2010 tax returns in Georgia saw their direct-deposit refunds vanish days after they showed up in their accounts. People who spent the money, used it to pay bills or simply transferred it to another account are upset to discover they have to resolve bounced checks and overdraft fees.
Commissioner Doug MacGinnitie, recently introduced as the new head of the Georgia Department of Revenue, said the department was aware of a computer-related error that caused tax refunds to be removed from about 30,000 residents' accounts.

He said the department made a mistake when issuing around $12 million in refunds late last week, realizing it paid out around $630,000 more than it should have. In an attempt to correct the problem, the revenue department tried to stop the transactions before they were processed, but became aware on Monday that the transactions had initially gone through, only to be reversed later.

Unfortunately for many Georgians who noticed the deposits over the weekend in their online bank statements, bank overdraft fees were triggered when the money disappeared on Tuesday after the deposits were reversed. "Once we became aware, we did everything we [could]," MacGinnitie said at a press conference to apologize to taxpayers affected by the mistake.

MacGinnitie added that the department has informed banks of the error and is working with them to resolve the issue. Taxpayers assessed an overdraft fee or other charge associated with the glitch can go to the Georgia Department of Revenue website and print a letter to take to their bank and request removal of any charges. Those without Internet access can call the department and request a copy of the letter.

No other explanation has been given for how this type of error happened. It leaves many wondering whether other direct deposits may subject them to similar problems. While rare, unfortunately, this is not an isolated incident.

Direct deposit has become increasingly popular in recent years, making funds available to recipients more quickly than waiting for a check and physically depositing it into a bank account. What many people would be surprised to discover is that part of the agreement they sign to authorize deposits in their account may also authorize certain withdrawals without requiring any notice.

A typical clause in the fine print of such an agreement might read, "If funds to which I am not entitled are deposited in my account, I authorize you to direct the financial institution to return said funds by any such method, and I authorize the financial institution to debit the same to my account."

Hopefully, though, we won't see a repeat of issues like these with any frequency, especially as state coffers run low and federal stimulus money comes to an end. At least those who had their refunds revoked in Georgia have been told that the Department of Revenue will reissue the properly calculated refunds as soon as possible.

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