Maintaining sufficient funds in your bank account is crucial for timely tax payments. Failure to do so may result in penalties from the Internal Revenue Service (IRS). If you've faced penalties due to bounced checks or failed electronic payments, here's what you need to know.
Causes of Bounced Check Penalties
When your bank account lacks sufficient funds to cover tax payments, the bank will return your check or decline the electronic transfer. The IRS will then notify you of the outstanding balance and applicable penalties.
How Penalties Are Calculated
The IRS determines penalties based on the amount of the failed payment:
- For amounts under $1,250: The lesser of the payment amount or $25
- For amounts $1,250 or more: 2% of the payment amount
Interest Accumulation
Penalties accrue interest from the date they're assessed until paid in full. Prompt payment helps minimize this growing financial burden.
Resolving Outstanding Penalties
To stop further accumulation:
- Make immediate payment to the IRS
- Settle your full tax balance to prevent additional penalties
Requesting Penalty Relief
The IRS may waive or reduce penalties if you acted in good faith with reasonable belief that sufficient funds were available. To request relief:
- Prepare a written statement explaining why the penalty should be removed or reduced
- Include supporting documentation (e.g., bank statements showing available funds)
- Mail the signed and dated request to the address provided in your IRS notice
Disputing Penalties
If you believe penalties were assessed in error:
- File an immediate appeal with the IRS
- Include a detailed explanation letter if the error originated from your bank
- Provide supporting evidence for your claim
Preventing Future Penalties
Proactive measures include:
- Maintaining adequate account balances
- Making partial payments if unable to pay in full
- Establishing an IRS payment plan when necessary
Seeking Professional Assistance
For complex cases, contact the IRS using the phone number provided in your notice. If you haven't received correspondence, use the IRS telephone assistance line to resolve penalty concerns and focus on your financial well-being.