Understanding The Dishonored Check Penalty
The IRS assesses a Dishonored Check or Other Form of Payment Penalty when your payment for taxes is returned unpaid due to insufficient funds. This includes checks and electronic payments. Knowing how the penalty works is the first step to resolving it.
If you receive a notice from the IRS regarding this penalty, it's crucial to understand the reasons and options available to address it. This guide provides clarity on how the penalty is calculated, how to avoid it, and what steps to take if you disagree with it.
Penalty How the is Calculated
The Dishonored Check or Other Form of Payment Penalty is calculated based on the amount of the original payment. The penalty structure is as follows:
For payments less than $1,250, the penalty is the payment amount or $25, whichever is less. For payments of $1,250 or more, the penalty is 2% of the payment amount.
Remember, interest is charged on penalties until the balance is paid in full. This increases the total amount owed, so it's important to address the penalty promptly.
Avoiding How to Avoid the Penalty
The easiest way to avoid this penalty is to ensure sufficient funds are available in your bank account when making tax payments. Careful financial planning can prevent this issue.
Consider applying for a payment plan if you cannot pay your taxes or penalties in full on time. This may reduce future penalties.
“Staying informed and proactive is key to managing tax obligations effectively.
The IRS
Interactive Tools
Helpful resources to understand and manage your tax obligations.
Penalty Calculator
Calculate your potential Dishonored Check Penalty based on the payment amount.
Disputing or Reducing the Penalty
You may be able to remove or reduce the penalty if you acted in good faith and had reasonable cause to believe you had enough funds.
To request a reconsideration, send a written statement explaining why the penalty shouldn't apply. Include supporting documents, such as bank statements, and mail it to the address on your notice.
If your bank dishonored the payment in error, dispute the penalty by sending a letter explaining why and including your payment for the original tax amount. Ensure to provide your notice details.
Getting Help and Additional Resources
For assistance, call the number on your notice or use the IRS’s phone assistance if you didn't receive one.
Related resources, such as special filing season alerts, IRS operational statuses, and understanding your CP165 notice, offer supplementary guidance.
Explore publications like 'Your Rights as a Taxpayer' (Publication 1) and 'The Examination Process' (Publication 3498) for further insights.