Overpay estimated taxes to facilitate Ibond purchase?

December 28, 2022 1:22 PM

The current limit for purchasing IBonds is $10,000 per year. However, if the IRS owes you a tax refund, then you can use up to $5,000 of that refund to purchase IBonds beyond the $10,000. Is it ok to intentionally overpay estimated taxes in the last quarter to ensure a $5,000 refund thereby making possible the additional purchase? I'm thinking of legal/IRS issues and not what is financially optimal.
posted by Kevin S to Work & Money (3 answers total)

Best answer: I have done exactly this. The only caveats are that the payment in I bonds may not happen if there's any issue with your taxes - some people report getting a bank deposit back instead of I bonds if the IRS finds anything wrong with your taxes. Also, you will get paper I Bonds by mail. You will either need to hold onto the bonds, or send them back to the US Treasury to convert into electronic bonds on TreasuryDirect.

To take it a bit further, you can pay the amount on credit card. Pay1040 currently charges 1.87% to pay your taxes via your credit card. I get 2% cash back on my credit card. I pay the entirety of my taxes this way, and make 0.13% of my taxes back in net credit card rewards.
posted by saeculorum at 1:42 PM on December 28, 2022 [5 favorites]

Best answer: From discussion at the Bogleheads forum, there seems to be no legal problem with intentionally creating a refund situation in order to purchase additional IBonds. But it seems common to receive a cash refund instead, for reasons the IRS may not be able to explain. Example Bogleheads thread on this topic.
posted by Snerd at 3:35 PM on December 28, 2022 [2 favorites]

Yes (*). But you are putting extra money into the IRS's gears and there's no guarantee in what form it will come back out, so make sure it's money you can stand to float.

(*) I feel that creating truly massive overpayments is asking to get flagged, but $5K isn't near that.
posted by praemunire at 4:45 PM on December 28, 2022 [2 favorites]