Are Taxes Paid for the Current Year Applied to Prior Year Arrears

[adjusterjack]

My friend is just now doing his 2013 taxes. For 2013 he did not pay estimated tax on his business but his wife's federal pension check had the W-2 withholding.

He is likely to have a tax bill of a several thousand plus the penalty.

He is also in arrears for prior year taxes and those arrears are being taken out of his wife's federal pension check.

If he manages to come up with the cash to pay the full amount due for 2013 will the IRS apply the payment to the 2013 taxes or apply it first to the balance due on prior years?

[llworking]

My friend is just now doing his 2013 taxes. For 2013 he did not pay estimated tax on his business but his wife's federal pension check had the W-2 withholding.

He is likely to have a tax bill of a several thousand plus the penalty.

He is also in arrears for prior year taxes and those arrears are being taken out of his wife's federal pension check.

If he manages to come up with the cash to pay the full amount due for 2013 will the IRS apply the payment to the 2013 taxes or apply it first to the balance due on prior years?

They will apply it to 2013.

You should advise your friend that by filing late, he actually cost himself additional penalties that would not have been assessed had he filed by April 15th.

[Taxing Matters]

If he manages to come up with the cash to pay the full amount due for 2013 will the IRS apply the payment to the 2013 taxes or apply it first to the balance due on prior years?

If the payment is sent with a payment voucher for the 2013 return or attached to the 2013 then its a designated payment to the 2013 return and that is how the IRS will apply it.

He’s going to get hit with a late filing penalty of 4.5% of the tax owed per month that the return is late up to a maximum of 22.5%, a late payment penalty of 0.5% of the unpaid tax per month every month until it is paid, interest on the entire amount owed until everything is paid, and the interest is compounded daily. He may also have a penalty for failure to make estimated tax payments. His lack of attention to his tax obligations is costing him a lot of money. He needs to file the return ASAP if the return was on extension to cut down on the late filing penalty. If he hasn’t made sufficient estimated payments for 2014, that should be his payment priority at this point or he'll be in the same boat next year for the 2014 return. The IRS won't release the levy or consider payment alternatives to collection by levy until he puts an end to the cycle of delinquency and at least gets current for 2014 and stays current from there.

[adjusterjack]

If the payment is sent with a payment voucher for the 2013 return or attached to the 2013 then its a designated payment to the 2013 return and that is how the IRS will apply it.

That's what I needed to know. Thanks.

He’s going to get hit with a late filing penalty of 4.5% of the tax owed per month that the return is late up to a maximum of 22.5%, a late payment penalty of 0.5% of the unpaid tax per month every month until it is paid, interest on the entire amount owed until everything is paid, and the interest is compounded daily. He may also have a penalty for failure to make estimated tax payments. His lack of attention to his tax obligations is costing him a lot of money. He needs to file the return ASAP if the return was on extension to cut down on the late filing penalty. If he hasn’t made sufficient estimated payments for 2014, that should be his payment priority at this point or he'll be in the same boat next year for the 2014 return. The IRS won't release the levy or consider payment alternatives to collection by levy until he puts an end to the cycle of delinquency and at least gets current for 2014 and stays current from there.

He's aware of all that.

Unfortunately, people on the brink of financial ruin care more about surviving now than about what the IRS will do to them later. So the delinquency cycle continues. If it weren't for the levy of federal benefits the IRS would get nothing. Not condoning, just understanding.

I will, of course, encourage him to get this resolved.

Thanks again.