IRS Tax Penalties Explained
April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. By law, the IRS may assess penalties to taxpayers for both failing to file a tax return and for failing to pay taxes they owe by the deadline.
Here are eight important points about IRS penalties for filing or paying late.
1. A “failure-to-file” penalty may apply if you did not file by the tax filing deadline. A “failure-to-pay” penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.
2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should always file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. The IRS will work with you or your tax representative.
3. The penalty for filing late is normally 5 percent (5%) of the unpaid taxes for each month, or part of a month, that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent (25%) of your unpaid taxes. Exceptions: There are several exceptions, such as those related to an S-Corporation Form 1120S whereby the failure-to-file penalty is calculated at $195 per shareholder per month.
4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent (.5%) of your unpaid taxes. That penalty applies for each month, or part of a month, after the due date and starts accruing the day after the tax-filing due date.
5. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent (90%) of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.
6. If both the 5 percent (5%) failure-to-file penalty and the ½ percent (.5%) failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent (5%).
7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent (100%) of the unpaid tax.
8. You may not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.
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