Bouncing a Check to the IRS: What Now?

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Benjamin Franklin said, “Nothing is certain but death and taxes”. If you’re thinking about eluding the IRS — think again. 

Tax evasion is a serious crime, punishable by fines, back taxes, and potential jail time! Whether you intentionally skipped out on your taxes or miscalculated funds, you eventually need to pay what’s due.

If you’re guilty of bouncing a check to the IRS, you have options. Although a fine may be in your future, you can recover from this lapse in judgment and payment.

Keep reading to find out how.

Don’t Panic!

Okay, first thing’s first. Don’t freak out. 

The IRS isn’t going to come knocking on your door the minute your check bounces. But they will expect you to make good on your payment.

The IRS’ first course of action is to send you a letter via postal mail. This is known as a Letter 608C-Dishonored Check Penalty. Your bank will also notify you as they would with any bounced check.

Most banks charge a nominal penalty fee for bouncing a check. The IRS will tack on a penalty as well. 

Once you realize your check to the IRS bounced, you can decide how to handle it.

questions about checks to the IRS bouncing

Why Did My Check Bounce?

First, determine why your check bounced. Were there insufficient funds in your account? Did you fill out the check incorrectly?

If lack of funds is the reason for your bounced check, there are a few things you can do. The smartest move is to deposit the necessary money immediately (given you have it).

While this won’t help with the penalty fee from your bank, it shows the IRS you had good intentions. In many cases, you can argue your way out of the IRS bounced check fee.

And even if you can’t, the penalty is minimal — 1-2 percent of the amount of the check. Be sure to cover this amount when you resubmit your payment. 

question regarding submitting payment to the IRS after having a check bounce

Will My Bounced Check Resubmit?

In some cases, a bounced check is instantly resubmitted a second time by the agency. If your check was returned for non-sufficient funds (NSF), you need to get the money to the bank ASAP!

While the IRS itself won’t resubmit your check, sometimes the clearinghouse your bank uses will. A clearinghouse is a go-between for two clearing firms. 

Check with your bank to find out if the check will submit a second time. If the check does clear after being resubmitted, the NSF penalty should be deferred. 

For checks that don’t automatically resubmit, you’ll need to write out a second check and mail it to the IRS immediately. Again, this check will need to include the penalty amount. Make sure you have sufficient funds and include the correct amount to avoid any further issues.

the potential of penalties if your check to the IRS bounces

What Penalties Are There for Bouncing a Check?

Bouncing a check is inconvenient and embarrassing, but it happens to everyone at some point, and it’s not the end of the world. You will, however, incur penalty fees from both the IRS and your bank. Here’s what to expect.

penalties from your bank for bouncing a check to the IRS

Bank Penalty Fees for Bounced Checks

Every bank handles bounced checks and insufficient funds differently. Unfortunately, you get fined even if you’re on the receiving end of a bounced check, leaving neither party with a smile on their face.

If you write a bad check to the IRS, you can expect a bank penalty fee of between $27 and $35.

The recipient of the check can also charge your bank a fee ranging from $20-40 or a certain percentage of the check amount. 

In the event that you receive a bounced check, you not only owe your bank the returned check fee, but you’re now faced with the task of recovering the money you’re owed. 

Penalties bouncing a check

IRS Penalty Fees for Bounced Checks

The IRS calculates bounced check penalties a little differently, depending on the check amount.

For checks up to $1,249.99, the fee is $25 or the amount of the check (whichever is smaller). For all checks more than $1,250, the penalty fee is 2 percent of the check amount. 

Penalties bouncing a check

What Happens if I Can’t Cover the Payment?

In a perfect world, your bounced check to the IRS was merely a mathematical error on your part. Maybe you forgot about an automatic withdrawal from your checking account or that purse you splurged on last week.

Whatever the reason your check was returned for NSF, you need to make good on your payment. But what if you can’t?

If you owe the IRS money but can’t pay it upfront, you have options. 

Penalties bouncing a check

Be Honest

The worst thing you can do is lie to the IRS about your situation. In most cases, a letter detailing your reason for either bouncing a check, being late on your taxes or not paying enough upfront will convince the IRS to reduce penalties and interest.

You’re asking for an “abatement” for your taxes, so be sure to use this phrase in your letter.

The IRS is also forgiving if you unknowingly underpay. If you based your tax payments this year on previous years but end up owing more, the IRS won’t charge you a penalty. As long as you pay by April 15. 

Penalties bouncing a check

Determine a Payment Plan

Despite popular belief, the IRS is a relatively reasonable organization. As long as you don’t try to dupe them, they’ll help you make good on what you owe.

Ideally, paying owed money to the IRS by April 15 is the way to go. This way, you avoid all late fees and interest. But if you can’t make that happen, a payment plan is a viable option.

A short-term payment plan doesn’t incur any fees (unless you use a credit card). By using this payment plan option, you’re agreeing to pay the full amount owed within 120 days.

A long-term payment plan (where you pay in more than 120 days using automatic withdrawals) costs the following:

  • Apply online: $31 set-up fee
  • Apply by phone, mail, or in-person: $107 set-up fee

A long-term payment plan that includes monthly installments costs $149 online and $225 through other means. There are also low-income payment options available.

Can I Recover from Bouncing a Check to the IRS?

The answer is, yes! While bouncing a check is less than ideal, it’s not a tragedy. As long as you make good on what you owe, the IRS will work with you.

Are you worried about unfiled tax returns? Or did you accidentally make a mistake on your tax return?

We’re here to help. Contact us 24 hours a day for legal tax advice and answers to your most pressing IRS questions.

Managing Partner of Silver Tax Group, author of the book “Stop the IRS”. Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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