April 15th, or the next day if April 15th is on a Saturday, Sunday, or federal holiday, is the deadline for most people to file their 1995 individual income tax return and pay any tax owed. Once you have filed your tax return, it is checked for mathematical accuracy and to see that all tax owed has been paid. If there is tax due, you will be sent a bill that you must pay in full within 10 days. There are several important things you should know about collection notices and bills.

Interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined every three months and is the federal short-term rate plus 3 percent. Interest is compounded daily. In addition, if you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, up to 25 percent. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.

If you owed tax and didn't file on time, the penalty is even higher. The combined late-filing and late-payment penalty is five percent of the tax owed for each month, or part of a month, that your return was late, up to 25 percent. And if your return was over 60 days late, the minimum penalty is the smaller of $100 or 100 percent of the tax owed.

You must file your return and pay your tax promptly to avoid interest and penalty charges.

Often the funds necessary to pay your tax can be borrowed at a lower effective rate than the combined IRS interest and penalty rate.

To ensure your payment on a bill for tax is credited properly, be sure to return the tear-off stub on your bill and use our return envelope when provided. Enter your social security number or employer identification number and the tax year and form number on your check or money order.

The penalties for filing late and paying late may be waived only if you have reasonable cause for being late. If you're billed for either penalty and feel you have reasonable cause, send your explanation along with the bill to your service center, or call the IRS at 1-800-829-1040 for assistance. Generally, interest charges may not be waived; they continue to accumulate until all assessed tax, penalties, and interest are paid in full.

If you believe there is an error on your bill, write to the IRS office that sent you the bill within the time frame given on the bill. You should provide photocopies of any records that may help correct the error. If you are correct, we will make the necessary adjustment to your account and send you a corrected notice.

For more information about IRS notices and bills, order Publication 594, Understanding the Collection Process. More information about penalty and interest charges is contained in Publication 17, Your Federal Income Tax.

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