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IRS waives some bad check charges

Bounced-check

The growing acceptance of electronic financial transactions has pretty much put an end to paper checks.

Pretty much, but not totally.

Some people still send old-school paper checks. And some of them sent such pen-to-paper payments to the Internal Revenue Service earlier this year to cover their due taxes.

Unfortunately for the payers, their checks arrived at IRS offices that were closed as part of the agency's coronavirus pandemic precautions.

And now that the IRS is digging those payments out of its massive mail backlog, there's a possibility that some of the months-old checks could bounce.

But the agency is giving these check writers a bit of a break.

While it does still want what you owe, it won't assess and late-payment fees on checks that arrives at IRS campuses during the key office closure period.

No notices, no check fees: The check payment issue came to light when folks who had sent in paper payments started getting notices that the IRS had not received their money.

The payments were buried in the reported 12 million pieces of mail that piled up before IRS employees returned to their offices. The agency said last week, after hearing complaints from taxpayers and getting an official letter from the chairman of the House Ways and Means Committee, that it was halting issuance of the nonpayment notices until it cleared the mail backlog.

In that same announcement, the agency said that payments found in the unopened mail will be posted and credited on the date the IRS received them, rather than the date the agency opened and processed them.

And in addition, the IRS said it would waive any bad check fees associated with paper payments that the agency received between received between March 1 and July 15.

Usual check penalties: In more normal tax times, the IRS is allowed to collect a penalty on bounced payments.

Section 6657 of Title 26 of the U.S. Code, aka the Internal Revenue Code, says that when a check or other commercial payment instrument issued for the payment of taxes doesn't clear the bank, a penalty of 2 percent of the amount generally applies.

The bad check penalty is a flat $25 fee where the check amount is less than $1,250.

Because of the IRS' work delays caused by the COVID-19 emergency, those dishonored check fees are now waived for paper payments received during the bulk of the time period when the agency was closed.

NSF alert triggers: There are a couple of reasons a check sent to the IRS months ago might now trigger a bank non-sufficient funds, or NSF, notification.

One is that the check writers stopped payment when they got a notice saying the IRS hadn't received their payments. That's a natural reaction. You didn't' know that the nonpayment notice was sent before the IRS checked its old mail. So you canceled it and sent in a another to cover your tax bill.

In these cases, if you haven't stopped payment on your original payment, the IRS asks that you don't. It will find that first check eventually.

But if you did, you won't owe any bad check charges.

Out of cash: Another reason a check from March might not clear now is simply because you no longer have the money. This circumstance, unfortunately, is one that's become more common as millions of folks have lost their jobs during the COVID-19 business pullback.

You knew you sent a check to Uncle Sam, but when he never collected that money, you used it to pay utilities or buy groceries. Totally understandable.

The IRS is waiving bounced check fees on payments sent during the applicable time period but which now can't be covered. But you still need to deal with the bill.

Contact the IRS and/or a tax professional as soon as possible to discuss payment plan options.

Other penalties, interest still apply: While relief from the bad tax payment check fee is welcome, there's one area where the IRS is holding firm.

Penalties and interest on unpaid amounts may still apply.

This could happen if, for example, you sent the IRS a tax payment on March 2 for your 2019 tax bill due this year on July 15. The IRS got the check in a timely manner, but it did not actually process it until Aug. 15, at which time it didn't clear.

The IRS won't assess a bad check penalty in this case.

However, it will impose interest and late-payment penalties calculated from the check's March 2 receipt date.

You also might find these items of interest:

 

Coronavirus Caveat & More Information
In 2020, we're all dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.

But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.

 

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Comments

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Missy @ MightyTaxes

We bounced a check to the IRS without realizing it. As u stated in section 6657 of title 26, the fee is 2% of the check. This was a large fee as it was payment for my quarterly taxes! Our account was only short about $40, but the penalty was much higher. Also, not sure if this is standard procedure, but the IRS tried to cash the same check again about 10 days later so I had 2 bounced check fees from my bank. They waived the 2nd bounced check fee, but it was ultimately an expensive mistake. also, bouncing a check to the IRS probably throws up a red flag. ugh!

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