The penalty and interest for not filing a federal tax return on time are more than for not paying on time!

April 15th is the due date for tax filing and paying if you owe

Generally, April 15 is the deadline for most people to file their individual income tax returns and pay any tax owed. During its processing, the IRS checks your tax return for mathematical accuracy. When processing is complete, if you owe any tax, penalty, or interest, you will receive a bill.

  • Generally, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily.
  • In addition, if you file a return but don’t pay all tax owed on time, you’ll generally have to pay a late payment penalty. The failure-to-pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25%, of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property. If you file your return by its due date and request an installment agreement, the one-half of one percent rate decreases to one-quarter of one percent for any month in which an installment agreement is in effect. Be aware that the IRS applies payments to the tax first, then any penalty, then to interest. Any penalty amount that appears on your bill is generally the total amount of the penalty up to the date of the notice, not the penalty amount charged each month.
  • If you owe tax and don’t file on time, there’s also a penalty for not filing on time. The failure-to-file penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there’s also a minimum penalty for late filing; it’s the lesser of $210 or 100 percent of the tax owed. See Topic No. 304 for information about extensions to file, if you can’t file on time.

There are some exceptions to the general deadlines for filing a return and paying tax, such as:

  • If you’re a member of the Armed Forces and are serving in a combat zone or contingency operation. Refer to Publication 3Armed Forces’ Tax Guide, for additional information and qualifications.
  • If you’re a citizen or resident alien working abroad. Refer to Publication 54Tax Guide for U.S. Citizens and Resident Aliens Abroad, for details.
  • If you were a victim in certain disaster situations. In those situations, the IRS has the authority to extend filing and payment deadlines. Search keyword “disaster” on IRS.gov for more information.

You must file your return and pay your tax by the due date to avoid interest and penalty charges. 

Penalties and interest continue to accrue (be added to the amount you owe) until the amount you owe is paid in full.

If you can’t pay your balance in full, pay what you can now. You can enter into an Installment Agreement to pay the remaining balance. Entering into an Installment Agreement may reduce future failure to pay penalties.

The IRS charges some penalties, such as the failure to pay penalty, on a monthly basis, until the tax owed is paid in full.

Automatic 6-month extension

You can get an automatic 6-month extension to file your tax return if, no later than the date your return is due, you file Form 4868.

What are common penalties?

Common penalties include:

  • Failure to file – when you don’t file your tax return by the return due date, April 15, or extended due date if an extension to file is requested and approved
  • Failure to pay – when you don’t pay the taxes reported on your return in full by the due date, April 15. An extension to file doesn’t extend the time to pay.
  • Failure to pay proper estimated tax – when you don’t pay enough taxes due for the year with your quarterly estimated tax payments when required
  • Dishonored check – when your bank doesn’t honor your check or other form of payment

How does the IRS calculate penalties?

Failure to file: Internal Revenue Code §6651(a)(1)

  • 5% of unpaid tax required to be reported
  • Reduced by the “failure to pay” penalty amount for any month where both penalties apply
  • Charged each month or part of a month the return is late, up to 5 months
  • Applies for a full month, even if the return is filed less than 30 days late
  • Income tax returns are subject to a minimum late filing penalty when filed more than 60 days after the return due date, including extensions. The minimum penalty is the LESSER of two amounts – 100% of the tax required to be shown on the return that you didn’t pay on time, or a specific dollar amount that is adjusted annually for inflation. The specific dollar amounts are:
    • $210 for returns due after 1/1/2018
    • $205 for returns due between 1/1/2016 and 12/31/2017
    • $135 for returns due between 1/1/2009 and 12/31/2015
    • $100 for returns due before 1/1/2009

Failure to pay tax reported on return: Internal Revenue Code §6651(a)(2)

  • 0.5% of tax not paid by due date, April 15; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy
  • Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid or until 25% is reached
  • Full monthly charge applies, even if the tax is paid before the month ends.

Failure to pay tax not reported on original return and not paid in full within 21 days of the date of notice and demand; 10 business days if the amount in the notice and demand equals or exceeds $100,000: Internal Revenue Code §6651(a)(3)

  • 0.5% of tax not paid by due date in notice – generally 21 calendar days from notice date, 10 business days if the balance equals or exceeds $100,000; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy
  • Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid
  • Full monthly charge applies, even if the tax is paid before the month ends.

Failure to pay proper estimated tax: Internal Revenue Code §6654

  • Estimated tax payments are generally required, if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits.
  • Generally calculated on Form 2210
  • We calculate the penalty separately for each required installment. The number of days late is first determined and then multiplied by the effective interest rate for the installment period.
  • See Publication 505 for more information.

Dishonored check or other form of payment: Internal Revenue Code §6657

  • For payments of $1,250 or more, the penalty is 2% of the amount of the payment.
  • For payments less than $1,250, the penalty is the amount of the payment or $25, whichever is less.

If you disagree with the balance

If you received a notice, call the IRS at the toll free number on the top right corner of your notice. Otherwise, please call the IRS at 1-800-829-1040. See telephone assistance for additional information. Please have your paperwork (such as cancelled checks, amended return, etc.) ready, when you call.

Removing penalties

The IRS may abate your penalties for filing and paying late if you can show reasonable cause and that the failure wasn’t due to willful neglect. Making a good faith payment as soon as you can may help to establish that your initial failure to pay timely was due to reasonable cause and not willful neglect. If you’re billed for penalty charges and you have reasonable cause for abatement of the penalty, send your explanation along with the bill to your service center, or call us at 800-829-1040 for assistance (see Telephone and Local Assistance for hours of operation). The IRS doesn’t generally abate interest charges and they continue to accrue until all assessed tax, penalties, and interest are fully paid.

If you owe the IRS, or receive a letter from the IRS, you need to come see us!

The Neighborhood Christian Legal Clinic – Low Income Taxpayer Clinic can consult with you to provide advice regarding your IRS tax problem, and/or potentially act on your behalf for FREE if you qualify for assistance (come to a clinic intake session)!
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Jim Floyd is the Staff Enrolled Agent at the Neighborhood Christian Legal Clinic – Low Income Taxpayer Clinic. As an Enrolled Agent, Jim is a federally-licensed tax practitioner with unlimited rights to represent clients before the Internal Revenue Service. This means he is unrestricted as to which taxpayers he can represent, what types of tax matters he can handle, and which IRS offices he can represent clients before. Enrolled agent status is the highest credential the IRS awards.

Jim is also a member of The American Society of Tax Problem Solvers (ASTPS), a non-profit professional association of practitioners that specialize in representing taxpayers before the IRS and other taxing authorities. Membership in ASTPS reflects commitment to excellence and high standards in taxpayer representation

Source: Internal Revenue Service