The state of California will require some taxpayers to make their estimated tax payments electronically or be subject to a 1% penalty.
I know of people who have carefully avoided letting any vendor (such as mortgage companies; credit card companies) dip into their bank accounts. If an error is made, or there is a dispute, the other party will have the money and it is up to you to get it back. Better for you to hang onto the money in the event of a dispute, and maintain the cash and the bargaining position. Now it seems the State of California is not giving them much of a choice.
This only applies to individuals with estimated payments of $20K or more, if I read correctly, so only folks with incomes of around $1 million or more and no withholding would be affected. The rule already applies to corporations.
The state will be making money from interest on the float and from penalties (non-compliance is estimated to be very small). They will lose a little from the reduced taxable income due to taking interest on the float away from the taxpayer.
When it comes to taxes, the statutory imposition of interest and penalties greatly reduces your "bargaining position", anyway. Once you do get a refund due to their mistake, you should also get interest on it too, right?
Whether or not subject to this mandatory payment method, I recommend the same general approach I use for most of my electronic payments: set up a separate account to limit how much can be taken out. Some credit card issuers provide for the creation of virtual card numbers to use with each merchant, with pre-set spending limits. You can still get free checking at many banks, and then deposit just enough to cover the payment.
Finally, the FTB provides the following two FAQ's, which you may or may not find comforting:
"# Can FTB debit my account without my knowledge or permission?
No. The ACH Debit method can only be initiated by using your taxpayer identification number along with your unique security code that you create. If you use the ACH Credit method, your payments are initiated by you through your financial institution.
# What do I do if I transmitted the wrong payment amount or sent my payment to the wrong state department?
Contact the e-Programs Customer Service Unit as soon as possible. [phone number and mailing address provided]"
I see one in the mirror every day. I can't imagine why anyone who's ever dealt with a cable company would give someone "that's what you owe" access to funds.
This is a different situation than just giving them access to debit your monthly bill. You authorize a specific transaction on a specific date. Luckily I've never had a problem (I do all my tax payments through EFTPS and the state equivalent), but it should be quite straightforward to resolve under routine banking laws if there's an error. There's definitely no source of disagreement as to what the transaction should have been.
The truly obstinate or those who wear suspenders and a belt might be able to fall back on title 31 provisions which, I believe, say creditors can't turn down cash in hand, but that's a lawyer question, and I'm not one.
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