Penalties for filing your tax return late
We normally “celebrate” Tax Day on April 15, but it’s been pushed back to April 18 this year for most people due to the Emancipation Day holiday in Washington, D.C. (deadline was April 19 for residents of Maine and Massachusetts due to the Patriots Day holiday in those states today). If you knew you weren’t going to be able to file your 2021 federal income tax return on time, you could have requested an extension to file your return until October 17 (but you still had to pay the tax you expect due by your original due date).
But, of course, some people missed the Tax Day deadline and didn’t ask for an extension. And, as you can guess, the IRS does not take this lightly and will make you pay the price. If you are curious to know what penalty the tax authorities will inflict on you, here is an overview of the interest and penalties you may face if you have not acted before the tax deadline.
Interest accrues on your outstanding balance and is compounded daily starting April 18 until you pay the balance in full (starting April 19 if you live in Maine or Massachusetts). Interest rates on tax underpayments are set quarterly. For non-corporate taxpayers, the rate is equal to the federal short-term rate plus three percentage points. The current interest rate for underpayments is 4% (for the second quarter of 2022).
Late payment penalty
If you haven’t Pay the tax you owe on time, the IRS will assess a late penalty equal to 0.5% of the tax owed after April 18 for each month, or part of a month, that the tax remains unpaid (after April 19 for people who live in Maine and Massachusetts). The penalty is capped at 25% of the amount due. The rate increases to 1% ten days after the IRS issues a final notice of intent to levy or seize property. However, the penalty is only 0.25% for each month, or part of a month, that an IRS installment agreement is in effect.
You won’t have to pay the penalty if you can show “reasonable cause” for not paying on time. Reasonable cause is based on all the facts and circumstances of your situation. The IRS will consider any valid reason for not paying your taxes on time, including:
- Fire, accident, natural disaster or other disturbances;
- Inability to obtain records;
- Death, serious illness, incapacity or unavoidable absence of yourself or a member of your immediate family; or
- Another reason that establishes that you used “every ordinary commercial precaution and precaution” to meet your federal tax obligations, but were nevertheless unable to do so.
Simply not having the money, by itself, is not a reasonable cause for not paying taxes on time. However, the reasons for your lack of funds may meet the reasonable cause criteria for the default penalty.
When you finally pay, the IRS will apply the payment first to the tax you owe, then to any penalties, then to any interest. The penalty amount that appears on your bill is usually the total penalty amount up to the date of the notice, not the penalty amount billed each month.
Penalty for failure to file
If you haven’t case your return before tax day and you have not requested an extension, the IRS may assess a 5% non-filing penalty on any unpaid taxes for each month, or part of a month, that your return income is behind. The penalty will however not exceed 25% of your unpaid taxes.
The late-filing penalty is calculated on the tax that remains unpaid after April 18 or, if an extension is granted, after October 17. refundable credits allowed.
If your return is more than 60 days late, the minimum non-filing penalty is the lesser of $435 (for tax returns due in 2022) or 100% of the tax to be reported on the statement.
If you still haven’t paid what you owe five months after tax day, the non-filing penalty will be maximum, but the non-paying penalty will continue until the tax is paid , up to 25%.
If a non-filing penalty and a non-paying penalty apply in the same month, the combined penalty is 5% (4.5% late filing and 0.5% late payment) for each month , or part of a month, that your declaration was late, up to 25%. The maximum aggregate penalty for failure to file and pay is 47.5% (22.5% late filing and 25% late payment) of tax.