Many Americans who missed the April federal income tax filing deadline will soon be receiving CP14 notices - Balance Due for Unpaid Taxes - in the mail, and tax experts urge that the letters be opened immediately and the required next steps be taken quickly.
Not following the orders in the notice can result in hefty penalties and added interest from the IRS.
The law requires CP14 notices to be issued within 60 days from the date the IRS assesses a tax liability. Each notice outlines how much is owed, how to pay it, and other information about the debt.
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Mark Steber, chief tax information officer at Jackson Hewitt, says if the amount due is not paid, the IRS can collect what is owed through a federal tax lien. The IRS may send a series of reminder notices - the "collection notice stream" - to ask for payment before it starts enforced collection. But Steber says taxpayers should not wait for the additional letters since penalties are assessed monthly and interest is compounded daily making the bill grow fast.
Options available for taxpayers who receive a CP14 notice include:
- Pay the entire tax balance in full. If you don't, interest on any unpaid tax compounds daily from the original due date of the return until the date you pay in full. Currently, the federal short-term rate is 5%. Plus, there's a .5% failure-to-pay penalty each month on the unpaid balance.
- Get an extension to pay in full. Taxpayers who just need more time than what's offered in their notice can work with the IRS to get a free extension-to-pay agreement for up to 180 days. Interest will still accrue, however.
- Set up a payment plan with the IRS. There is a fee involved based on the filer's financial status and the monthly payment method selected.
Taxpayers who cannot pay in full immediately, with an extension, or through a payment plan may have other options, including temporary "not collectible" status or a tax settlement, called an "Offer in Compromise."