Taxes From A To Z (2017): N Is For NSF

It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, you won’t want to miss it.

N is for NSF.

When you write a check, the recipient assumes that there is money in your account to pay the face amount. In that way, a check acts like a promise to pay: it’s not exactly the same as cash until after it’s been cleared by the bank. If you don’t have enough money in your account to cover the amount of the check, the check may be returned as NSF. NSF means non-sufficient funds. NSF checks are sometimes referred to as bad checks or bounced checks (the latter is because the checks come right back).

Writing an NSF check can not only be embarrassing, it can cost you extra money. If you submit a check to the Internal Revenue Service (IRS) and it’s returned as NSF, not only are you still responsible for the amount of the taxes (and any penalty or interest that accrues for failing to satisfy your tax obligation in a timely manner), you may be subject to an additional penalty: a “dishonored check penalty.”

If your check is returned as NSF, the IRS will notify you by sending a Letter 608C, Dishonored Check Penalty Explained. The letter will explain that you’ll be assessed a penalty equal to 2% of the amount of the check. However, if the amount of the check is less than $1,250, the penalty is the lesser of $25 or the amount of the check. If you have good cause for submitting an NSF check, however, you can request a penalty abatement from IRS.

Rather than bounce a check, check out these options when you can’t pay your tax bill in full.

For more Taxes A to Z, check out: