Getting tax notices is stressful — but a lot of that stress can come from the unknown. A little bit of education on what SORT of tax notices you’re getting can go a long way toward releasing you from that anxiety. It’s understandable, after all opening the mailbox and seeing tax notices IRS or another tax authority can bring up all sorts of emotions. If you are like me, your mind starts thinking about all the worst-case/ scenarios that could be coming. What did I do wrong? What did I not do right? How much is this going to cost me? How long is this going to take?
These questions race through my mind all between my walk from the mailbox to my house – before I even open the letter. This article is going to explore some of the common reasons why tax notices will show up, and what to do when it happens to you.
There are a variety of reasons why the IRS may be sending you a letter in the mail. It’s important to take some time to review the letter to see what issue or concern is being presented. A few common reasons why you may receive a notice would be:
Reasons you may be receiving tax notices from the IRS
- Tax Return Error: The IRS might have identified what they believe to be an error, discrepancy, or omission in the tax return that was filed.
- Unpaid Tax Liability: If you have any unpaid taxes or outstanding balances, the IRS will send a notice to let you know about the balance they have on your account along with instructions on how to pay the balance.
- Notice of Audit or Exam: Some returns are selected for an audit or exam so that the IRS can ensure accuracy and compliance with the appropriate tax laws.
- Identify Theft Concern: When changes are made to a taxpayer’s account, the IRS will often send a notice letting the taxpayer know that a change was made. This is to prevent unauthorized changes from occurring without the taxpayer being aware.
The most common tax notices we receive from businesses are due to the first or second reason, and most of the issues presented are resolved rather quickly. So, what causes these issues in the first place?
Tax Notices Reason #1: Tax Return Errors
All state tax agencies, as well as the IRS, require certain tax forms to be filed by the appropriate due dates, and often electronically. The most common issue we see is when paper forms are filed, and they end up getting lost in transit. When this happens, we generally need to provide proof of timely filing along with a copy of the returns that were sent. A common issue among new employers is when the state requires an electronically filed form, but the account with the state hasn’t yet been established, which prevents a filing from occurring. Again, this issue is typically resolved with some back-and-forth correspondence but can sometimes come with penalties and/or interest being added to the account.
Tax Notices Reason #2: Unpaid Tax Liability
These can be a little more scary! I just know that I paid all my taxes, yet I’m getting a letter saying I didn’t? What could possibly be wrong and where is my money? The majority of the unpaid tax letters we see are due to a payment being lost or misapplied. Lost payments occur when a check is mailed, but never received, which can require voiding the original payment and reissuing a new payment, and misapplied payments typically require a little more digging by the tax agency to find where the payment was made and getting it moved over. We once were involved in a situation where the IRS issued a refund check at the same time they asked for a payment for the same amount – all because they misapplied the payment. Another common unpaid tax liability occurs around state unemployment taxes where the state may have changed the tax rate and the taxpayer wasn’t aware and submitted the wrong payment amount. Again, it is an easy fix, but frustrating, nonetheless.
The majority of these errors occur because tax agencies are working with millions of taxpayers and they make mistakes. When that happens, having as much documentation that you did things right on your end is really important to avoid additional penalties, fines, or interest.
Tax Notices Reason #3: Payroll Company Problems
But they aren’t the only ones that make mistakes. Your payroll company could’ve made a mistake too. It’s likely they service companies all over the country, which means there’s bound to bound to be some errors in the processing. When that happens at Whirks, we work hard to fix the mistake and pay all of the fees that are issued so that our clients don’t feel the impact of our mistake.
So what do you do when you have a tax notice show up? Send it to us (or whichever payroll provider you use) and let us asses and resolve it for you!
If you’ve struggled to get help with your notices, maybe it’s time to consider changing payroll providers. Check out our article about changing payroll in the middle of year to see if it’s time to get the ball rolling.