Smart Tax Planning

Have old tax bills with the IRS? Why you should pay them immediately

Key Points
  • The IRS and Treasury gave taxpayers more time to pay 2019 taxes owed and file their returns. Both are due on July 15.
  • Currently, the taxman isn’t processing individual paper tax returns. Amended returns are required to be submitted on paper, so you’ll have to wait to send them off.
  • Owe the IRS from a prior year? Pay them now online. Expect a refund from a prior year? You’ll have to sit tight and file on paper first.

The IRS isn't processing paper returns right now as they deal with distributing coronavirus stimulus checks.

While that's not an issue for most taxpayers, who currently have until July 15 to turn in their 2019 federal income tax returns and pay any amounts owed, it is a big problem for people who have to file amended returns. These can only be processed on paper.

The solution: if you owe something for prior years, pay it now as penalties and interest continue to pile up.

Where your federal taxes are spent

"I envision the paper returns in a mailroom somewhere in a big stack," said April Walker, CPA and lead manager for tax practice and ethics at the American Institute of CPAs.

"The IRS has also said that if you filed the paper return for whatever reason, be it current or amended, don't file another one and don't ask about the status because they won't know," she said.

Here's a surprise: Just because the IRS won't process your amended return from 2018 or 2017, it doesn't mean you get a break on the liability you may still owe from that year.

"If you have an amended return and you know you owe money but can only file on paper, then the interest is definitely accruing from the time the amended return was due," said Walker.

Interest and penalty accrual

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In addition to interest accruing on your balance owed, you could also be subject to a failure-to-pay penalty – 0.5% of the tax owed for each month or part of a month the tax remains unpaid, up to 25%.

If you're late submitting your return, you're also subject to a failure-to-file penalty. That adds up to 5% of the unpaid tax for each month or part of a month that your return is late.

Forget cutting a check at this point. Make a direct payment to the IRS electronically.

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"Even though the amended return hasn't been filed, it'll be matched up later," said Walker. "This is a way to help people who are worried about interest and penalties accruing."

Alternatively, if the amount you owe is so large that you can't pay it in one fell swoop, you can enter an installment agreement with the IRS online. This way, you'll chip away at the balance owed every month.

If you have an amended return and you found out you're owed a refund from a prior year, congratulations! But you'll have to wait until the IRS begins processing paper returns again.

"These people have to be patient and wait for the service centers to open up," said Walker.

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