CP16 Notice: Overpayment Applied to Balance Due

The CP16 Notice is issued by the IRS to notify taxpayers that their overpayment or refund has been applied to an outstanding balance from a previous tax year. Instead of receiving a refund, the overpayment has been used to reduce or pay off the prior-year tax debt.

Key aspects of the CP16 Notice:

• Application of Refund: The notice explains that the IRS has used the taxpayer’s current-year overpayment or refund to satisfy a balance due from a previous tax year. The notice will provide a breakdown of how the overpayment was applied to the debt.
• Impact on Refund: If the overpayment exceeds the balance due, the remaining refund will be issued to the taxpayer. If the overpayment is less than the balance owed, no refund will be issued, and the taxpayer will still owe the remaining balance.
• What to Do Next: The CP16 serves as an informational notice, and typically no further action is required. However, taxpayers should review the notice to ensure the application of the overpayment is correct and contact the IRS if they believe there is an error.
• Future Payments: If the taxpayer continues to have outstanding tax liabilities, future overpayments or refunds may also be applied to those debts until the balance is fully paid.

The CP16 Notice is important for taxpayers to understand how their refund or overpayment is being applied to satisfy previous tax debts.