Late on Tax Filing or Payments? A Penalty’s Waiting

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If you do not file your tax return on time, you are subject to a late filing penalty that can go as high as 47.5% of the unpaid tax.

If, however, you file on time but you do not pay the entire amount, you will be charged a late payment penalty that ranges from 0.5% to 25% of the unpaid amount.

If you ask for an installment payment plan for unpaid taxes and it is approved by the IRS, you will have to pay a fee and interest on any unpaid tax amount.

Now let’s detail the situations that you might find yourself in, if you don’t pay on time and/or don’t pay everything you owe.

You filed on time, but did not pay everything you owe

You will most likely have to pay a late-payment penalty. This penalty is 0.5% of the amount owed for each month (either full or partial) after the due date. If you don’t pay within the first 10 days after you having been notified by the IRS, the 0.5% will increase to 1%. The penalty can go to as high as 25% of the taxes owed. The IRS will however drop the penalty if you can show any reasonable causes for which you failed to pay.

You did not file on time and did not pay everything

If you did not file your taxes on time and you owe the government some money, it is possible that you not only have to pay the late-payment penalty (see above), but also a late-filing penalty.

The total penalty amounts to 5% (0.5% for late payment plus 4.5% for late filing) for each complete or partial month after the due date. Usually, the government applies the late filing penalty for no more than five months. After that, if you still don’t pay, the 0.5% late payment penalty continues to be applied and can increase to up to 25% of the amount owed, until you pay everything you owe. In the worst case, you might have to pay 47.5% of the amount owed: (4.5% late filing penalty multiplied by 5 months) + 25% late payment penalty = 47.5%.

If you’re more than 60 days late, you have to pay (as late filing penalty) the smaller amount between $135 and 100% of the tax that appeared on your return.

You pay your taxes on an installment plan

If you filed Form 9465 (to request an installment agreement plan) and the IRS approved it, you will be charged an administrative fee and interest on the unpaid amount.

If you filed your taxes on time, but you’re part of an installment agreement, a late-payment penalty of 0.25% applies for each month (full or partial) until the amount owed is fully paid.

To Sum Up

No matter which category you fall into, you have to pay interest on any taxes you owe, from the due date until you pay your full debt. The interest rate can change every three months.

The bottom line is (surprise!) that you should file on time and pay everything you owe.