Tax Penalties

It’s best to file on time and pay as much of your balance due as possible. If you didn’t do this by the tax deadline, you probably fit into one of three categories.

You filed on time but didn’t pay all of your balance due — You’ll usually have to pay a late-payment penalty.

If you’re experiencing economic hardship, use Form 1127 to ask for an extension of time to pay the tax you owe.

The penalty is 0.5% of the tax owed for each full or partial month that you don’t pay the tax in full after the due date. The maximum penalty is up to 25% of the tax due. The 0.5% rate increases to 1% if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy.

If you can prove reasonable cause for the failure to pay, the IRS won’t impose the penalty.

You haven’t filed or paid your balance due — If you didn’t file on time and you owe tax, you might owe a late-filing penalty, too. This is in addition to the late-payment penalty — unless you can prove reasonable cause.

The combined penalty is 5% — 4.5% late filing plus 0.5% late payment — for each full or partial month your return is late. The IRS usually imposes the late-filing penalty for a maximum of five months. However, after five months, if you still haven’t paid, the 0.5% late-payment penalty continues to increase — up to 25% — until the tax is paid. So, your combined maximum penalty might be as high as 47.5%:

(4.5% late-filing penalty x 5 months) + 25% late-payment penalty = 47.5% total penalty

If your return is more than 60 days late, the minimum late-filing penalty is the smaller of $135 or 100% of the tax you owe.

You’re paying taxes through an installment agreement — The IRS will charge you an administrative fee plus interest on the unpaid tax if both of these apply:

• You filed Form 9465 requesting an installment payment plan.
• The IRS accepted your installment payment plan.

The late-payment penalty is 0.25% for each full or partial month the tax remains unpaid if both of these apply:

• You filed your return on time.
• You’re paying your tax due via an installment agreement.

Regardless of which category you fall into, you’ll owe interest on any balance due from the return’s due date until the payment date. The interest rate is adjusted every three months.

To learn more, see these tax tips:

• IRS Contact Information
• Amended Return – Form 1040X
• Audit