Paying the Tax and Interest Due in an IRS Streamlined Filing

The IRS Streamlined Filing Compliance Procedures waive penalties, not the money. A qualifying non-willful taxpayer still owes the underlying US tax shown on the three amended or delinquent returns, plus statutory interest running from each year's original due date to the day the payment posts. Everything else in the programme is procedure; this is the cheque.

paying the tax and interest due in an IRS streamlined filing is the part of the process most advisers describe in a single sentence and most clients discover is the hardest to execute. Jungle Tax prepares streamlined submissions for US citizens, green card holders and accidental Americans resident in the United Kingdom, and the payment step is where otherwise clean packages go wrong: the balance is computed on the wrong basis, the interest is guessed, the money is wired without a year designation, or it never leaves the UK at all because the client has no US bank account and no obvious way to send dollars to Austin, Texas.

What streamlined actually waives — and what it never touches

Read the programme terms literally. The Streamlined Foreign Offshore Procedures (SFOP) remove a specific list of penalties. They do not remove tax, and they do not remove interest. Interest under IRC section 6601 is not a penalty; it is the statutory price of having held the government's money, and no compliance programme short of a reasonable-cause abatement of a penalty-based interest component reaches it.

Item	Streamlined Foreign Offshore (non-US resident)	Streamlined Domestic Offshore (US resident)
Underlying US income tax on the 3 covered years	Payable in full	Payable in full
Statutory interest from each original due date	Payable in full	Payable in full
Failure-to-file penalty (IRC 6651(a)(1))	Waived	Waived
Failure-to-pay penalty (IRC 6651(a)(2))	Waived	Waived
Accuracy-related penalty (IRC 6662)	Waived	Waived
Information-return penalties (5471, 3520, 8938)	Waived	Waived
FBAR penalties	Waived	Waived
Title 26 miscellaneous offshore penalty	None	5% of the highest aggregate year-end balance/value

The practical consequence for a UK-resident filer is that the entire cash cost of the submission is tax plus interest. For a great many of our clients that number is small or nil, because UK effective rates on employment income sit above US rates and the foreign tax credit absorbs the liability. For clients with investment income, the number is rarely nil — and that is a cross-border problem, not a US one.

How is the balance across the three covered years computed?

The covered period is the three most recent years for which the US return due date, including any properly applied-for extension, has already passed. You compute each year independently, on that year's law, that year's rates and that year's exchange rates. There is no averaging and no netting across years; a refund position in year one does not offset a liability in year three unless and until the IRS applies it, which it may decline to do for a year that is closed under the refund statute.

The exclusion-versus-credit decision drives the number

For a UK-resident client the single largest lever is whether earned income is sheltered by the foreign earned income exclusion or relieved by the foreign tax credit. On UK salaries at higher and additional rates the credit almost always produces the better outcome, because UK tax paid exceeds the US tax on the same income and generates carryforward. But an election made or revoked in a streamlined package has consequences that outlast the three years — a revoked FEIE election is generally locked out for five subsequent tax years absent IRS consent. We model both bases across all three years and the following five before committing, and that modelling is inseparable from cross-border tax planning rather than mere return preparation.

Where the tax actually arises for UK clients

• ISAs and UK-domiciled funds. A stocks-and-shares ISA is a UK wrapper, not a US one. Underlying UK-domiciled OEICs, unit trusts and investment trusts are generally passive foreign investment companies for US purposes. Absent a timely QEF or mark-to-market election, the default section 1291 regime taxes excess distributions and disposal gains at the highest ordinary rate for the relevant year, with its own separate interest charge on the deferred tax. That interest charge is calculated inside the PFIC computation and is not the same thing as the section 6601 interest on the return balance — and it is not waived by streamlined either.
• UK pension growth and distributions. Treaty positions on the US–UK double taxation agreement can defer US tax on the inside build-up of a UK registered pension, but the position has to be claimed on a filed return with the appropriate disclosure. A lump sum taken under UK rules, tax-free in the UK, can be fully taxable in the US and generates a balance with no foreign tax to credit against it.
• Capital gains on a UK main residence. Private residence relief is a UK relief. The US section 121 exclusion is capped and, for a large London gain, leaves substantial taxable gain with no UK tax paid to credit.
• Net investment income tax. The 3.8% NIIT sits in chapter 2A. The interaction between NIIT and foreign tax credits is contested and has been litigated; the conservative computation assumes credits do not reduce it, and any treaty-based position needs to be documented on the return.

Those four items explain nearly every five- and six-figure streamlined balance we see from UK-resident clients. They are also the four items generalist US expat preparers most often get wrong, which is why we treat the computation as a high net worth engagement rather than a returns-processing exercise.

How does the statutory interest accrue?

Interest runs on each year's unpaid tax from that year's original due date — not from the date the delinquent return is filed, and not from the date the streamlined package is posted. For a US citizen abroad the return due date for interest purposes is the ordinary April deadline; the automatic two-month extension to 15 June relieves the late-filing penalty but does not stop interest, and neither does an extension to October. This is the single most common misunderstanding we correct.

The rate is set quarterly under IRC section 6621 as the federal short-term rate plus three percentage points for individual underpayments, and it compounds daily under IRC section 6622. Because it resets every quarter, the interest on a three-year streamlined package is a chain of different rates, not one rate applied to one period. Over the last several years that chain has moved from 3% to 8% and, for the quarter beginning 1 July 2026, sits at 7% for individual underpayments. On a three-year-old liability, daily compounding at those levels adds materially more than a straight-line estimate suggests.

Worked illustration

Assume a client with a $40,000 US balance arising in the earliest covered year, $12,000 in the middle year and nil in the most recent year. Interest on the $40,000 runs for roughly three years across a sequence of quarterly rates; interest on the $12,000 runs for roughly two. At mid-to-high single-digit rates compounding daily, the interest component on that profile commonly lands in the region of a fifth of the tax — and every additional month of drafting the non-willfulness narrative adds to it. Speed is not merely a risk-management argument for streamlined; it is an arithmetic one.

Should you compute the interest yourself or let the IRS bill you?

The published SFOP instructions require the submission to include payment of all tax due and all applicable statutory interest. In practice there are two workable approaches, and the choice is a judgement call:

• Compute and remit. You calculate interest to an assumed posting date and pay it with the package. This presents the strongest possible compliance posture — the file arrives complete — but you will almost never hit the number exactly, because interest continues to accrue until the payment is actually applied.
• Pay the tax, let the service compute the residual interest. You remit the tax and a good-faith interest figure; the IRS assesses the shortfall and issues a CP notice for the small remaining balance. This is administratively common and does not, of itself, invalidate a streamlined submission.

Our standard practice is to compute interest to a date roughly thirty days beyond the intended posting date and deliberately overshoot by a modest margin. An overpayment is refunded or applied; an underpayment generates a notice, and notices generate correspondence with an IRS unit that is slow to answer letters from abroad.

How do you actually pay the IRS from the UK without a US bank account?

This is the operational bottleneck. The IRS payment estate is built around US domestic banking, and several of the headline options are simply unavailable to a Londoner whose only current account is with a UK high-street bank. The routes that genuinely work are these.

Route	Works without a US bank account?	Practical notes for UK-resident filers
Cheque or money order enclosed with the package	Only if drawn on a US bank in USD	The traditional method and the one the SFOP instructions contemplate. Write the taxpayer identification number, the tax year and "Form 1040" on the face. UK-drawn sterling cheques are not accepted.
International wire transfer (same-day wire)	Yes	Complete the Same-Day Taxpayer Payment Worksheet with the correct five-digit tax type code and tax period, and hand it to your UK bank. Your bank needs a correspondent relationship with a US bank. Reliable but expensive, and the correspondent chain can strip reference data.
Debit or credit card via an IRS-authorised processor	Yes, where the card network and issuer permit	The most practical route for many UK filers. Processor fees apply, and the card issuer must authorise a large USD merchant transaction — arrange the limit uplift with your bank first, and expect to split a large balance across years and cards.
IRS Direct Pay	No	Requires a US checking or savings account with an ABA routing number. A SWIFT/IBAN-only UK account cannot be used.
EFTPS	Generally no, for new individual users	New individual enrolment has been curtailed; taxpayers not already enrolled are directed to Direct Pay or an IRS Online Account, both of which assume US banking.
IRS Online Account	Partially	Useful for confirming posted balances and accrued interest even when it cannot be used to pay. Identity verification from a UK address can be the obstacle.

The IRS publishes the wire instructions and the tax type codes for foreign electronic payments, and expressly warns that this route can be costly. See the IRS guidance on foreign electronic payments and tax type codes and on paying taxes by same-day wire. The full streamlined submission requirements, including the payment and mailing instructions, sit on the IRS page for US taxpayers residing outside the United States.

Designate every payment by year and form

This is where money disappears. A single lump-sum wire covering three years will frequently be applied to one year, or to the earliest module, or held in an unapplied suspense account. Make one payment per tax year, each with its own tax period and tax type code, each referencing Form 1040 and the taxpayer identification number. If a payment is misapplied, unwinding it requires a written request to the service centre, and interest continues to accrue on the year that was left short in the meantime.

Currency, timing and the FX cost nobody budgets for

US tax must be remitted in US dollars. The conversion happens on your side of the Atlantic, and on a six-figure balance the spread between a high-street bank rate and a specialist FX provider is often larger than the entire processor fee. Two further points matter. First, the exchange rate used to compute the liability on the return is not the rate at which you buy the dollars to pay it — the return uses the appropriate rate for the income year, the payment uses spot. Second, the interest clock does not stop while your money is in transit; build the settlement days into the interest calculation rather than the posting date you hoped for.

What if the balance cannot be paid in full?

Inability to pay does not, by itself, disqualify a taxpayer from streamlined. The programme's eligibility gates are non-willfulness, the residency test for SFOP, and the absence of an existing IRS examination or criminal investigation — not liquidity. In practice, a submission accompanied by as much of the balance as the taxpayer can fund, together with a request to enter an instalment arrangement for the remainder, is workable. But understand the trade: an instalment agreement leaves the liability outstanding, section 6601 interest continues to compound daily, and the failure-to-pay penalty waiver granted under streamlined is directed at the pre-submission period rather than being an open-ended immunity for the future. Wherever the balance is fundable, fund it.

Does paying US tax now change your UK position?

Very often, yes — and this is the half of the exercise that pure US expat preparers do not run. Three consequences deserve attention.

• Foreign tax credit relief on the UK side. Where the same income is taxable in both countries and the treaty gives the US the primary taxing right — most commonly US-source income, or income resourced by treaty — the UK return may need amending to claim credit for the US tax now paid. HMRC's helpsheet on relief for foreign tax paid (HS263) sets out the mechanics and the SA106 reporting. Time limits are unforgiving: the ordinary window for amending a Self Assessment return is twelve months from the filing deadline, with a longer overpayment relief route available in defined circumstances.
• The UK side may also be delinquent. Clients who missed US returns have frequently also mis-reported offshore income to HMRC. HMRC's disclosure facilities carry their own interest and penalty regimes, and the Requirement to Correct and failure-to-correct rules bite hard on offshore matters. Sequencing the two disclosures matters; running them in the wrong order can create inconsistent statements across two revenue authorities. This is core UK tax services territory and should be co-ordinated with the US filing, not bolted on afterwards.
• Timing mismatch between the tax years. The US calendar year and the UK 6 April to 5 April year never align, so a US payment made in one UK tax year may relieve income taxed in another. Credit relief follows the income, not the cash, and the reconciliation needs to be documented.

Mistakes we are asked to unwind

• Interest computed from the June expatriate deadline rather than the April due date, understating the balance across all three years.
• A single wire covering three years, applied entirely to one, generating notices for the other two.
• PFIC section 1291 interest omitted entirely, because the preparer treated ISA holdings as ordinary securities.
• A sterling cheque posted to Austin, returned months later, by which point interest had compounded on the whole balance.
• The FEIE revoked to improve the three streamlined years without modelling the five-year lock-out that followed.
• Payment made but the package posted separately, so the return and the money never met in the same module.

A workable sequence

• Compute all three years on both an exclusion and a credit basis, including PFIC and NIIT exposure, and fix the basis before drafting anything.
• Calculate section 6601 interest year by year across the applicable quarterly rates, to a target posting date plus a margin.
• Confirm the payment route and, if it is a card or a wire, clear the transaction limit with your UK bank in advance.
• Buy the dollars deliberately rather than at the bank's default rate.
• Make one designated payment per covered year, then post the complete package — Form 14653, the three returns marked "Streamlined Foreign Offshore" in red, and the payment evidence — to the dedicated Austin address.
• File the six years of FBARs electronically through FinCEN's BSA E-Filing system with the reason-for-late-filing selected.
• Review the UK Self Assessment position and amend or disclose where credit relief or a correction is required.
• Monitor the IRS account for posting and for any residual interest notice, and respond promptly.

Further reading across our guides covers the eligibility and non-willfulness certification side of the programme; this guide is deliberately confined to the money. If you want the returns themselves prepared to the standard the payment step assumes, that sits within our US tax services.

Speak to us in confidence

Every day a streamlined balance sits unpaid, it compounds. If you are weighing a submission, hold an unquantified exposure across ISAs, UK pensions or a property gain, or simply need the interest computed and a payment route that works from a UK bank, contact our cross-border team for a confidential, privileged-in-substance conversation. We will tell you what the number is before you commit to anything — and, where the credit position supports it, we will tell you if the number is nil.