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By the time the IRS delayed Tax Day 2020 from April 15 to July 15 due to the coronavirus pandemic, many people had already submitted their 2019 tax returns. But then the IRS closed its processing facilities and call centers during the height of the initial pandemic response, leaving submitted tax returns—and related payments—to languish.
The IRS has previously stated that payments will be posted and credited to accounts on the date the IRS received them, rather than the date that the mail was actually opened and processed, since the IRS was delayed in handling the payments.
The IRS now has announced that it won’t charge bad check penalties for payments it received between March 1 and July 15 that were not processed. This could provide a small reprieve for taxpayers who didn’t have enough money left in their checking accounts by the time their payment was processed.
According to the IRS, only about 10% of taxpayers file their returns by mail, with the rest filing electronically. Even with that small percentage, in June, the IRS said the agency had a backlog of 11 million pieces of unopened mail, including 2019 tax returns, as well as amended returns (which until recently could only be submitted by mail).
IRS Penalty for Dishonored Checks
The IRS penalty for a dishonored check—meaning your financial institution couldn’t complete the payment you had initiated—depends on the amount of the payment.
If the check was for an amount between $25 and $1,250, the penalty is $25. Beyond that, the penalty is 2% of the amount of the check.
If you’re still waiting on the IRS to process your 2019 (or amended) return or payment, the agency says not to cancel your check, and to make sure you have enough money in your checking account to cover the amount.
But while the IRS won’t charge fees for bad checks due to its mail-handling backlog, you could still face charges from your bank.
How to Request a Returned Check Fee Waiver
The maximum fees charged by banks and credit unions for returned checks vary by state, but often range from $20 to $40 per check.
The penalty can be even higher in some places: In Florida, you can be charged 5% for the amount of a check for more than $800; in Georgia, you can be charged 5% for checks of more than $600. In Ohio, the maximum is $30 or 10% of the check amount, whichever is greater.
If you participate in an overdraft protection program, your bank may charge a fee to temporarily cover the deficit in your account. The typical overdraft fee is about $34 and can recur until you’ve made enough deposits to put you in the positive.
You won’t get any penalties forgiven if you don’t ask. One credit union Forbes Advisor contacted said the issue won’t be widespread enough to warrant an across-the-board action to prevent customers from dealing with those fees.
Reach out to your bank or credit union’s customer service department if you’re charged a penalty after the IRS unsuccessfully tries to process your payment check. Many financial institutions are still offering accommodations for people financially impacted by the pandemic by waiving fees on a case-by-case basis.
If your financial situation changed between the time you mailed your tax payment check and the time it was processed and your tax payment check was returned, explain that situation to your bank and ask for the associated fees to be waived.
Suspension of Notices
While the IRS continues to work through its backlog of unopened mail, it has temporarily suspended the automatic follow-up notices that are typically mailed to taxpayers who have a balance due. It hasn’t said when it will resume sending these notices.
Taxpayers with a balance due will still receive one notice of the amount due, but will not receive the typical maximum of three follow-up notices.
“Although the IRS continues to make significant reductions in the backlog of unopened mail that developed while most IRS operations were closed due to COVID-19, this temporary adjustment to processing is intended to lessen any possible confusion that might be associated with delays in processing correspondence received from taxpayers,” the agency’s announcement explained.
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August 27, 2020 at 11:38PM
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IRS Waives Bad Check Penalties While It Works Through Processing Backlog - Forbes
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