IRS Penalties for Late Filing and Payment of Federal Taxes in 2020

The penalties can get steep if you neither file nor pay

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In the United States, April 15 is Tax Day, which is when individual tax returns have to be submitted—unless it happens to fall on a weekend or holiday, in which case, it becomes the next business day. Tax Day also represents when you must file for a tax extension if you need more time to prepare your tax return, and it grants you an additional six months. Unfortunately, if you're late filing your taxes or making your tax payment, the Internal Revenue Service (IRS) charges penalties and interest.

The Penalty for Late Payment and Filing

The late payment penalty, or failure-to-pay penalty, applies to any portion of your federal tax debt that remains unpaid as of the due date, which is typically the tax filing date. The IRS imposes a failure-to-pay penalty of 0.5% for each month or part of a month that the tax goes unpaid, but it can't exceed 25% of the total tax you owe

The penalty for filing late is steeper. Like the failure-to-pay penalty, it applies to any portion of your tax that remains unpaid as of the filing date. The penalty is 5% for each month or part of a month that your tax return is late, also with a maximum penalty of 25%. The clock starts at your tax deadline, and the penalty accrues until you file your return. The longer you wait, the worse it gets. If you fail to file within 60 days of the due date, you'll pay at least $435 or a penalty equal to 100% of the tax you owe, whichever is less. 

Interest compounds daily and is typically added to any unpaid tax from the time the payment was due until the date the tax is paid. The rates are set by the IRS every three months at the federal short-term rate plus 3%.

If You Don't File or Pay

If you let April roll by and don't request an extension from the IRS to file your return in October, and if you owe taxes on that return, the cap on the total associated penalties works out to 47.5% of the tax due—22.5% for late filing and 25% for late payment. The failure-to-pay penalty will keep on growing up to 25% even after the failure-to-file penalty maxes out.

File for an Extension

​You should immediately file a request for an extension of time if you know you're going to be late finishing your tax return. You may also want to file an extension even if you've completed your return, and it looks like you owe taxes. This at least pushes your filing deadline back to October and helps you avoid the more serious late filing penalty. 

Now you have time to take your return to a tax professional to make sure that you're not missing a deduction, credit, or some other detail that could help you out. A deduction will decrease your taxable income and may push you into a tax bracket that lowers your tax bill, and a tax credit will reduce what you owe to the IRS and could put you in a situation where you're receiving money back instead of paying.

Waving the Penalties

The IRS may provide administrative relief and waive the penalties if you qualify under its First Time Penalty Abatement policy. To qualify, you must not have filed or had any penalties in the prior three tax years, filed your current tax year's return on time, and paid, or arranged payment, for any tax you may owe. The IRS may also waive the late payment penalty if you can show that there's a reasonable and justifiable reason for the late payment. Likewise, they may also waive the late filing penalty if you can establish that you didn't file your return on time for a reasonable cause, such as an illness or other unforeseen tragedies.

If you have a failure-to-pay penalty, it will continue to accumulate, along with the interest, until the tax owed is paid in full. Once the penalty is reduced or removed, the interest will be reduced or removed. Administrative relief may also be provided if you received misleading advice from the IRS, but this is harder to prove and claim.

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