Facts about IRS Failure to File and Late Payment Penalties

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8 Facts about Failure to File or Pay Penalties

 

It’s important for taxpayers to file tax returns timely and pay timely.  When a tax return is filed late and/or taxes are paid late, the IRS can assess a Failure to File Penalty, Failure to Pay Penalty or Both.

Here are eight important facts about the two different penalties one might encounter if you file or pay late.

  1. If you do not file by the tax deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure to pay penalty.
  2. The Failure to File penalty is typically greater than the failure to pay penalty.  If you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. The IRS is generally helpful to work out a payment plan.
  3. The late filing penalty is usually 5 percent of the unpaid taxes for each month or part of a month that a return is filed late. This penalty will not exceed 25% of  the unpaid taxes.
  4. 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 of the unpaid tax.
  5. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
  6. Important: If you file an extension request by the tax deadline and you paid at least 90 percent of your tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.
  7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, 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 of the unpaid tax.
  8. Reasonable Cause: you will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.