Can you explain this IRS question I have?
I’m going to talk to our tax preparer about this, but thought maybe some of you could give me some insight.
So I get a statement every month. I originally owed $3745. Had fees and interest of $94 and $100, so the balance was then $3939.
I’ve made 8 payments of between the minimum of $80 up to $200, but the remaining balance isn’t going down.
I sat on hold for an hour yesterday. When I finally talked to an agent he said my balance is now $3937. I paid $200 last month and it only reduced my balance by $2.00.
They kept talking about fines and interest. He told me they accrue at a rate of about $20 a month.
So I said, “OK, if I pay $80 then $60 of it should go to the principal.”
He said, “No it all goes to the principal.”
“So why isn’t my balance going down?”
He said something about going to the IRS website to see how the
“congressionally approved” fees and interest works.
WTH is going on? It’s the same bill, same amounts, every month.
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8 Answers
I can’t speak for your situation, but here’s what I saw on the IRS site:
http://www.irs.gov/Individuals/Online-Payment-Agreement-Application
It looks like you would have an up-front setup fee (or two), but after that the payments ought to go through normally,
This ought to calculate your amounts going to principal and interest:http://tcalc.timevalue.com/all-financial-calculators/personal-finance-calculators/loan-payoff-calculator.aspx
I plugged in $4000 at 3% at $200/month.
Payment Schedule
Event Loan Payment Interest Principal Balance
Loan 1 $4,000.00 $0.00 $0.00 $4,000.00
Payment 1 $200.00 $10.00 $190.00 $3,810.00
Payment 2 $200.00 $9.53 $190.47 $3,619.53
Payment 3 $200.00 $9.05 $190.95 $3,428.58
Payment 4 $200.00 $8.57 $191.43 $3,237.15
Payment 5 $200.00 $8.09 $191.91 $3,045.24
Payment 6 $200.00 $7.61 $192.39 $2,852.85
Payment 7 $200.00 $7.13 $192.87 $2,659.98
Payment 8 $200.00 $6.65 $193.35 $2,466.63
That makes sense. But paying $200 and having the principal only go down by $2.00 (two dollars) doesn’t make sense.
Could it be that the IRS thinks you have been making estimated tax payments for the current tax year, rather than paying off the prior tax year’s balance that was in arrears?
You would think that the IRS would apply your payments against your oldest debts first, but who knows? Do you use a payment voucher when you send in your payments?
With estimated tax payments, you make them before filing for that year. Not everyone is required to make estimated tax payments. Depends on your tax situation.
For example, if you are required to make estimated tax payments for 2015, you make the payments during 2015 (and one in Jan. 2016) for tax year 2015 even though your tax return for 2015 isn’t due until Apr. 15, 2016. But this is completely different from making payments for past due taxes.
I was just wondering if the IRS was confusing the two kinds of payments in your case.
The irs compounds interest on your debt. That’s why only 2$ goes to principal. That’s why people are encouraged to take a bank loan, anything except a payment plan with the irs.—same here and I left the country thank god—
There is no way in hell they charged me $198 in interest on one payment.
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