- Failure to File
- Failure to Pay
- Failure to Pay Proper Estimated Tax
- Dishonored Check
Failure to Pay
- The maximum penalty is 25% of the tax due.
- The rate increases from .5% to 1% per month 10 days after the IRS issues a final notice of intent to levy or seize property.
- The penalty rate is .25% for each month or part of a month in which an installment agreement is in effect.
Failure to File
- The failure-to-file penalty is .5% of the unpaid taxes for each month or part of a month that a tax return is late.
- The penalty won't exceed 25% of your unpaid taxes
- If both a failure-to-file and a failure-to-pay penalty are applicable in the same month or part of month, the combined penalty is 5% (4.5% late filing and .5% late payment) for each month or part of a month that your return was late, up to 25%.
- The late filing penalty is calculated based on the tax that remains unpaid after the due date. Unpaid tax is the total tax shown on your return reduced by amounts paid through withholding, estimated tax payments, and allowed refundable credits.
- If after five months you still haven't paid, the failure-to-file penalty will max out, but the failure-to-pay penalty continues until the tax is paid, up to 25%.
- The maximum total penalty for failure to file and pay is 47.5% (22.5% late filing and 25% late payment) of the tax.
- If your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $435 (for tax returns required to be filed in 2020) or 100% of the tax required to be shown on the return.
- The interest rate for taxpayers other than corporations is the federal short-term rate plus 3%.
- The federal short-term rate is determined every three months.
Incentive to file and pay in a timely manor
Often, you can borrow the funds necessary to pay your tax at a lower effective rate than the combined IRS interest and penalty rate.
So file and pay on time and borrow money if you need to to get it done and you probably will be better off financially and emotionally as a result.
If you can't pay what you owe you are better off filing and paying on time. If you don't have the money get a loan to pay it and it is likely what you will pay in principal and interest will be less than paying your taxes and the IRS penalties and interest over time.
Late filing does happen, in fact every year a growing number of late filers ask me to help them to get compliant with the tax filing and payment requirements. It is a tough move to make but it is even harder to continue to wait and carry the anxiety of worrying about when the IRS will catch up to you. Not only is late filing and paying difficult, but the emotions are very difficult as well. I help many people each year to get caught up. Don't procrastinate any longer. Contact me today using my email address below to arrange a consultation to help you get started.
Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.