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Questions:

  • I still owe taxes from a previous year and am getting a refund this year. I would like
    to apply this refund to the taxes I owe. How do I go about doing this?

You may not get all of your refund if you owe certain past-due amounts,
such as federal tax, state tax, a student loan, or child support. Your refund
will automatically be applied to any outstanding balances.

 

  • Can my refund be used to pay other debts?

Under the law, state and Federal agencies refer to the IRS the names of taxpayers who are behind in their support payments, taxes, and loans. Your tax refund may not be refunded to you if you are delinquent in child or child and spousal support payments, have a past due Federal debt (such as a student loan), or owe state income taxes. Therefore, your refund will be used to pay other debts you owe.

Solution going forward: Plan ahead, do a "dummy tax return" so you know about how much tax you will owe and only pay up to the amount you owe. Do not overpay. If you under-pay a little bit that is better than overpaying. If you owe a small amount there will be either no penalty or a small penalty.

  • Can a person receive a tax refund if they are currently in a payment plan for prior year's federal taxes?

As a condition of your agreement, any refund due you in a future year will be applied
against the amount you owe. Therefore, you may not get all of your refund if you owe
certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IRS will automatically apply the refund to the taxes owed. If the refund does not take care of the tax debt; you must continue the installment agreement.

Solution going forward: see solution above.

  • What kind of penalties and interest will I be charged for paying and filing my taxes late?

Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.

For current interest rates, go to News Releases and Fact Sheets and find the most recent Internal Revenue release entitled Quarterly Interest Rates.

In addition, if you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent. However, you will not have to pay the penalty if you can show reasonable cause for the failure. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.

If you filed a timely return and are paying your tax pursuant to an installment agreement, the penalty is one-quarter of one percent for each month, or part of a month, that the installment agreement is in effect.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause. The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%. The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax and any timely payments made with the return. After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid. Thus, the total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed. Also, if your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $100 or 100% of the tax required to be shown on the return.

  • I received an IRS bill for an amended return I filed. I am not able to pay the whole amount at this
    time. Will the IRS allow me to make monthly payments?

If you cannot pay the full amount due, you can ask to make monthly installment payments.
You can be charged a fee for this arrangement. Penalties and interest will continue to accrue
on the unpaid amount until the account balance is paid in full.