What to Do If Your IRS Check Payment Bounces or Does Not Clear

If you bounce a check to the IRS, the agency will assess a penalty, and depending on the nature of your payment, you may face other consequences as well. The penalty is 2% of the face value of the check or $25, whichever is higher – if the payment was for less than $25, the penalty is for the face value of the check. 

The IRS does not resubmit bounced checks, but the clearinghouse used by your bank may do so. Read on to learn more or use TaxCure to find a tax professional today.

Key takeaways

• IRS bounced check fee – the greater of 2% of the check or $25.
• Consequences – a bounced check may subject you to late payment penalties or put your installment agreement into default.
• How to resolve – contact the IRS to make up the missed payment as soon as possible.

What to expect if your check to the IRS bounces

If you don't have enough funds in your bank to cover a check you wrote to the IRS, your bank may return the payment. You will generally receive a notification from your bank and potentially a non-sufficient funds (NSF) fee. Then, the clearinghouse that your bank uses may resubmit the check – if it goes through the second time, there's nothing to worry about. 

However, if the check doesn't go through the second time or if the clearinghouse only presents the check once, the check will be returned to the IRS. At that point, the IRS will assess a penalty and send you Letter 608C–Dishonored Check Penalty. The IRS will also reverse any payments that were credited to your account due to that check.

Consequences of writing a bad check to the IRS

Depending on the situation, you may face the following consequences if the IRS dishonors a check that you wrote:

Late payment penalty

If the check is to pay taxes due from a return, the payment will be considered late, and you will incur a failure-to-pay penalty, which is 0.5% of the balance due. For example, say that you wrote a check for $10,000 – the late payment penalty will be $50 and the bounced check fee will be $200.

Failure-to-deposit penalty

If the check was for payroll taxes, the returned payment generally means that you will incur a failure-to-deposit penalty. This penalty ranges from 2 to 15%, depending on when you make the deposit. However, if you were paying early and you're able to make the deposit by the original due date, you will not incur this penalty.

Defaulted installment agreement

If you're on an instalment agreement, missing a payment will put your agreement into default, and the IRS will send you CP523. You have 30 days to make the payment, or your payment plan will be terminated. If the IRS terminates your installment agreement, the agency can move forward with tax liens, wage garnishments, and asset levies.

Loss of offer in compromise

If the check was for an offer in compromise, you may lose the offer if the check is dishonored. However, if you get in verified funds (for example, a cashier's check) before the due date, you should be able to keep the offer. Typically, with an offer compromise, you must pay the offer within five months of acceptance or in monthly payments within 24 months of acceptance. 

How to calculate the IRS penalty for returned payments. 

Calculate the IRS dishonored check penalty as follows:

• If the check is less than $1,250, the penalty is either the amount of the check or $25, whichever is the smaller amount.
• For checks of $1,250 or more, the penalty is 2% of the check amount.

For example, if the check is for $100, it's beneath the $1250 threshold, so the penalty is the lesser of the face value of the check or $25 – that means the penalty is $25. However, if the check were for just $20, the penalty would be the amount of the check, so $20. 

Now, if the check is for $2000, that's over the $1250 threshold, and that means the 2% penalty applies. On a $2000 check, that's a $40 penalty.

Penalty Waivers for bounced check fees

If there are mitigating circumstances (such as a bank error), you can ask the IRS to waive the penalty. To apply for a penalty waiver, call the IRS or write a letter asking for penalty abatement and explaining why the error occurred. 

What if my bank returns an ACH payment to the IRS?

A returned ACH or direct debit payment is the same as bouncing a check. You will incur a returned payment penalty plus additional consequences depending on the situation. 

What to do if you bounce a check to the IRS

A bounced check to the IRS is not the end of the world, but it does require prompt attention. Once you determine for sure that the check will not go through a second time, calculate your penalty and resubmit your payment quickly to avoid additional penalties or fees.

If you're on a payment plan, make sure that you get in the new payment by the deadline on your IRS notice. Otherwise, the IRS will terminate your plan – it's possible to set up a new payment plan after termination, but you will have to provide additional financial details. 

Get help with IRS tax debt.

What if you can't afford your taxes? If you bounced a check, you may be struggling financially, and the IRS has a few options that can help you. In particular, if you have limited income and assets, you may want to look into an offer in compromise where you apply to settle your tax debt for less than owed. Or, consider currently noncollectible status – that's where the IRS pauses all collection actions after you prove that you cannot afford to make payments. 

To get help dealing with the IRS, use TaxCure to find an experienced tax professional today. Using the filters, you can narrow down the search results to find a tax pro with the experience you need. You can also look for a pro to help you with state tax problems.