The IRS can assess nearly 150 different types of penalties. If you owe the IRS, penalties are inevitably going to be added to your overall tax debt.
Common tax penalties include:
- Failure to file – when you don’t file your tax return by the return due date, April 15, or extended due date if an extension to file is requested and approved
- Failure to pay – when you don’t pay the taxes reported on your return in full by the due date, April 15. An extension to file doesn’t extend the time to pay.
- Failure to pay proper estimated tax – when you don’t pay enough taxes due for the year with your quarterly estimated tax payments, or through withholding, when required
- Dishonored check – when your bank doesn’t honor your check or other form of payment
How does the IRS calculate penalties?
Failure to file: Internal Revenue Code §6651(a)(1)
- 5% of unpaid tax required to be reported
- Reduced by the “failure to pay” penalty amount for any month where both penalties apply
- Charged each month or part of a month the return is late, up to 5 months
- Applies for a full month, even if the return is filed less than 30 days late
- Income tax returns are subject to a minimum late filing penalty when filed more than 60 days after the return due date, including extensions. The minimum penalty is the LESSER of two amounts – 100% of the tax required to be shown on the return that you didn’t pay on time, or a specific dollar amount that is adjusted annually for inflation. The specific dollar amounts are:
– $215 for returns due on or after 1/1/2020
– $210 for returns due between 1/1/2018 and 12/31/2019
– $205 for returns due between 1/1/2016 and 12/31/2017
– $135 for returns due between 1/1/2009 and 12/31/2015
– $100 for returns due before 1/1/2009
Failure to pay tax reported on return: Internal Revenue Code §6651(a)(2)
- 0.5% of tax not paid by due date, April 15; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy
- Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid or until 25% is reached
- Full monthly charge applies, even if the tax is paid before the month ends.
Failure to pay tax not reported on original return and not paid in full within 21 days of the date of notice and demand; 10 business days if the amount in the notice and demand equals or exceeds $100,000: Internal Revenue Code §6651(a)(3)
- 0.5% of tax not paid by due date in notice – generally 21 calendar days from notice date, 10 business days if the balance equals or exceeds $100,000; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy
- Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid
- Full monthly charge applies, even if the tax is paid before the month ends.
Failure to pay proper estimated tax: Internal Revenue Code §6654
- Estimated tax payments are generally required, if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits.
- Generally calculated on Form 2210
- IRS calculates the penalty separately for each required installment. The number of days late is first determined and then multiplied by the effective interest rate for the installment period.
- See Publication 505 for more information.
- See IRS News Release IR-2019-55 or IRS News Release IR-2019-24 (Farmers and Fishermen) to determine if you meet the criteria for a waiver of this penalty for your taxes.
Dishonored check or other form of payment: Internal Revenue Code §6657
- For payments of $1,250 or more, the penalty is 2% of the amount of the payment.
- For payments less than $1,250, the penalty is the amount of the payment or $25, whichever is less.
Penalty Abatement
Taxpayers that are hit with IRS penalties can request the penalties to be abated. Abated means to completely or partially remove or forgive the penalty. In many cases where a taxpayer requests abatement, the IRS removes 100% of the penalty.
- The IRS requires that you have a good reason to request penalty abatement.
- What qualifies as a good reason? It depends on the circumstances involved with your particular situation.
- The IRS procedures for deciding who qualifies for penalty abatement, and for what reason, seem to differ in each case.
- The best thing you can do is request that the IRS abate your penalties by explaining the circumstances surrounding your situation.
Who Qualifies?
More properly called first-time penalty abatement, the FTA is an administrative waiver the IRS may optionally grant a taxpayer under certain specific circumstances. Perhaps with the perspective that anyone can make a mistake, the FTA doesn’t forgive the underlying tax obligation, but it waives any additional sums added to the owed tax or alternatively may reduce the amount owed. The FTA is appropriate for tax penalties relating to:
- Failure to file
- Failure to pay
- Failure to deposit
Importantly, FTA is not available to those taxpayers who the IRS has flagged for tax accuracy matters.
How to Get Help
Once you’ve reviewed this information, we invite you to schedule a free consultation to talk about your tax case. When you contact us through this website, an experienced tax attorney will review your submitted case information to discuss with you during the meeting. This consultation is 100% free.
The attorney will listen to the details of your tax case and give you their honest and qualified assessment as to your legal options.