By William Perez. Tax Planning: U.S. Expert
William Perez has worked as a tax professional since 2004. He earned the enrolled agent designation by passing a comprehensive examination on federal taxes and maintains his credential by taking continuing education classes.
The IRS imposes penalties for late payment of tax, for late filing of a tax return, or both. The IRS also charges interest on any unpaid tax.
The late payment penalty applies to any portion of federal tax that is unpaid as of the payment due date. For each month or part of a month that the tax remains unpaid, the IRS imposes a failure-to-pay penalty of half of one percent (0.5%).
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The late payment penalty cannot exceed 25% of the net amount of the tax due. The IRS may waive the penalty if the taxpayer can show there was a reasonable cause for the late payment. (Internal Revenue Code section 6651 .)
Penalty for Failure to File a Tax Return by the Due Date
The late filing penalty applies to any portion of tax that is unpaid as of the payment due date and the tax return is filed after the filing due date. The failure-to-file penalty is calculated based on the time from the deadline of your
tax return (including extensions) to the date you actually file your tax return.
The penalty is 5% for each month or part of a month that the tax return is late, up to a maximum penalty of 25%.
"If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax" (from Publication 17, Your Federal Income Tax. section on penalties ).
The late filing penalty is based on the net amount of tax due as shown on the tax return. This penalty can be waived at the discretion of the IRS if taxpayer can show that the return was filed late due to a reasonable cause.
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Interest is typically added to any unpaid tax from the time that the payment of tax was due until the date the tax is paid. Interest rates are set by the IRS every three months. Currently, the IRS interest rate for underpayments of tax is 3% per year. The interest is calculated for each day your balance due is not paid in full. Interest is assessed on the unpaid amount of tax plus any late filing or late payment penalties. (Internal Revenue Code section 6601 .)