It is well-known that the IRS charges taxpayers penalties and interest. The four most common reasons for this are:
- Failure to File
- Failure to Pay
- Estimated Tax Penalty
- Dishonored checks
Failure to File Penalty
The good news is, in cases where a refund is due, there is no penalty for late filing. According to the most recent IRS statistics, that means about 77% of taxpayers do not need to worry about this penalty. (https://www.irs.gov/newsroom/2018-and-prior-year-filing-season-statistics).
However, for those who do have a tax balance, it is important to know how the failure to file penalty may affect you.
The failure to file penalty is calculated at a rate of 5% of the taxes owed for each month (or portion of a month) the tax return is not filed. The minimum penalty for filing more than 60 days late is the lesser of $210* or 100% of your unpaid tax (i.e. if the amount due is $50 than the minimum penalty for filing more than 60 days late is 50%, rather than the higher minimum of $135). The penalty will cease to accrue once the return is filed or once the maximum 25% penalty is reached.
Failure to Pay Penalty
The late payment penalty is .5% (1/2 percent) of the tax due for each month ( or portion of a month) the balance remains unpaid. Just like the failure to file penalty, the maximum penalty is 25% of the tax balance owed and will cease to accrue once this maximum is reached or once the debt is paid.
Estimated Tax Penalty
If you did not withhold enough or make the necessary estimated tax payments, you may be subject to an underpayment penalty. The penalty is calculated separately for each installment due date therefore, you may owe the penalty for an earlier due date even if you paid enough tax later to make up the underpayment. This is true even if you are due a refund when you file your tax return. Be aware that there are many exceptions to this rule, for instance, the penalty may be waived if the taxpayer meets one or more of the following rules:
- – the balance owed is less than $1,000
- – Withholdings and estimated tax payments amount to at least 90% of the balance due
- – The withholdings and estimated tax payments amount to at least 100% of the tax on the prior year’s return
- – Withholdings and estimated tax payments amount to at least 110% of the tax on the prior year’s return for taxpayers with an adjusted Gross income (AGI) of over $150,000 ($75,000 if married filing separate).
- – To see more, refer to
If the taxpayer is subject to an underpayment penalty, the IRS Form 2210 calculates the balance. (https://www.irs.gov/pub/irs-pdf/i2210.pdf)
Dishonored Check Penalty
Like many operations, the IRS charges a fee for bounced checks or other denied form of payment. The penalties charged vary on the amount oof the payment. For payments of $1,250, the penalty is the less of $25 or the amount of the payment.
It is important to note however, that while each of these penalties have maximums, the IRS does charge interest. Please be aware of this if you decide to delay payments
Finally, because penalties and interest differ for each situation, we recommend you visit with a tax professional or use the IRS tool to calculate penalties and interest. The IRS calculator is a free tool that provides a breakdown of penalties and interest depending on when a return is filed and how much is owed. IRS Penalty Calculator
* The IRS adjusts the specific set amount for inflation annually. The amount given here ($210) is the requirement for tax returns due after 1/1/2018 and differs from year to year. Refer to the IRS guidelines for specifics on other tax years.