How does the IRS apply payments?

Information on how the IRS applies payments towards tax liability

The IRS will apply any undesignated payments or payments made through collection specification/resolution (i.e. levy, installment agreements, OIC payments after acceptance) in the government’s best interest.

The undesignated payment is applied to the period with the oldest collection statute using the payment application rules listed below. Any payments made voluntarily or any additional payments made above the minimum Installment Agreement amount can be designated by the taxpayer in their best interests.

As applicable, the IRS applies undesignated payments in the following order:

1. Principal Tax*
2. Assessed lien fees and collection costs
3. Assessed penalty
4. Assessed interest
5. Accrued penalty to date of payment
6. Accrued interest to date of payment

*Specifically for undesignated payments towards Form 941, the principal tax is paid in the following order:

1. Non-trust fund portion of tax (employer’s share of FICA)
2. Trust fund portion of the tax (employee’s federal income and share of FICA)

If you need help with a tax liability or have any questions about your tax liability payment, feel free to reach out to us at (800) 540-0433.