A bounced check can merit severe repercussions from the IRS, which should motivate taxpayers to know more about the IRS bounced check process.
In this article:
- IRS Returned Check: What Happened and What Will Happen?
- What Are the Penalties for a Bounced Check?
- IRS Bounced Check Redeposit: What to Do?
Penalties and Processes of an IRS Bounced Check
IRS Returned Check: What Happened and What Will Happen?
Sometimes, taxpayers erroneously send an invalid check which may bounce. The bounced check can come from a variety of mistakes or oversights, and more often than not commercial establishments and banks are willing to straighten out the matter before issuing a penalty.
However, the IRS, specifically the automated system, automatically signals a bounced check as a red flag. Unfortunately for most taxpayers, the IRS treats a bounced check as more than just a small annoyance, but rather a serious offense. In some cases, it can trigger an IRS audit.
The IRS will send a Letter 608C–Dishonored Check to the taxpayer advising him or her about the possible penalties and asking for clarification. The letter not only details the penalties for the bounced check, but also informs the taxpayer that other late tax penalties may apply.
However, banks usually advise the taxpayers way ahead of the IRS, since banks contact the taxpayer when a bounced check shows up in their system before the IRS contacts the taxpayer.
What will happen next is that the clearing house may decide to resubmit the check, which may accelerate the imposition of the bounced check penalty. While most taxpayers might think that the IRS requested for funds twice, in actuality the clearing house or banks processes the check.
For taxpayers enrolled in the electronic confirmation of their bank account activity, they can easily catch that the bank tried to resubmit the check. This can really help as the taxpayer can either fund the account, or ask that the check be invalidated and send a new one.
What Are the Penalties for a Bounced Check?
The penalty for a bounced check depends on the amount.
- If the bounced check is less than $25, then the penalty follows the amount. For example, a bounced check for $24 carries a penalty of $24, making the total payable tax to $48.
- For amounts ranging from $25 to $1,250, the IRS levies $25.
- If the bounced check is $1,250.01 or more, then the IRS will apply 2% of the amount. For example, a $2,000 bounced check can lead to a penalty of $40.
Taxpayers should note a few things as well.
- With the bounced check penalty comes other fees, like the late filing fee as well as interest on the tax debt. Late fees can cost up to 5% per month, so the bounced check penalty might be the least of a delinquent taxpayer’s concerns.
- The bank overdraft fees are usually higher than the bounced check fees. It might be better for taxpayers to first contact the bank.
- A bounced check can lead to an IRS audit, which can also lead to possible tax audit penalties.
While a bounced check penalty by itself does not really cost that much, what the IRS does next will cost not just money, but also time and effort, especially with an audit.
IRS Bounced Check Redeposit: What to Do?
Taxpayers should first determine whether they should fund the bounced check, or cancel it, or contact the IRS and send another check.
Another option available for taxpayers, especially for a first-time offender and those who have a good reason for a bounced check is penalty abatement. While the bounced check penalty is not much, abatement of the penalty also includes other attached penalties.
A bounced check can look like a delinquent taxpayer trying to stall for time, so taxpayers should double-check if everything is in its proper place.
A bounced check penalty is not the worst thing to come out of a bounced check. However, a taxpayer who knows what happens and what to do can get out of the predicament relatively unscathed.
Have you mistakenly issue a bounced check to the IRS before? How did you handle it? Share your experiences in the comments section below.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.
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