The Internal Revenue Service (IRS) wants taxpayers to file their tax returns on time and pay their tax bill. To incentivize taxpayers. the IRS has imposed penalties for noncompliance.
- Failure to File Penalty:
The failure to file penalty is imposed when a taxpayer neglects to submit their tax return by the specified deadline (Partnerships, S Corporations usually by March 15, Individuals usually by April 15). The penalty is calculated at 5% of the unpaid taxes for each month the return is overdue, up to a maximum of 25%. If your return is more than 60 days late, the minimum penalty is the lesser of $435 or 100% of the unpaid tax.
Navigating the Failure to File Penalty: To avoid this penalty, ensure you file your tax return on time, or consider filing for an extension, which grants you additional time to submit your return without incurring the failure to file penalty.
- Failure to Pay Penalty:
The failure to pay penalty applies when a taxpayer fails to settle their tax bill by the due date, regardless of whether they have filed for an extension. The penalty accrues at a rate of 0.5% of the unpaid taxes per month, up to a maximum of 25%. If you enter into an installment agreement with the IRS, the penalty is reduced to 0.25% per month.
To mitigate the failure to pay penalty, it’s essential to pay as much of the owed taxes as possible by the due date. If full payment is not feasible, consider exploring IRS-approved payment plans or installment plans.