IRS – Late Filing Tax Return Penalties – Need Some Motivation?

by Mike Holman

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If you are still working on filing your taxes with the IRS after the April 15th deadline or perhaps you haven’t even thought about doing your taxes then you need to read this article – all the various financial penalties will be outlined.  Once you have finished this article, then you should be more motivated to finish your tax return.

Read about the 2010 tax deadline for your 2009 taxes.

If you thinking about buying tax preparation software then consider software programs such as TurboTax or TurboTax Canada (formerly QuickTax).

Failure to file penalty

This is the big one - if you don’t file your tax return or an extension by April 15th then you will get nailed for the failure to file penalty.  This also applies if you get an extension to file your tax return and miss the new deadline.

How much is the failure to file penalty?

The penalty is 5% of the tax balance due per month up to a maximum of 25%.  A new month starts on the 15th of each month so if you file on May 18th then you will pay 2 months penalty or 10%.  This is the biggest penalty by far so it’s important to file your tax return as soon as you can even if you don’t have a penny to pay the money owed.  If you don’t owe any money then there is no penalty.

For example if you owe $1000  and file your taxes 1 week after the deadline then your failure to file penalty will be $50 ( 5% of $1000).  Keep in mind that if you file more than 60 days past the deadline then the minimum failure to file penalty will be your unpaid tax or $135 whichever is smaller.

If you owe $1000 and don’t file for 5 months or more then the failure to file penalty will be 25% or $250!

Late payment penalty

The late payment or failure to pay penalty is applied when you have filed your tax return but didn’t pay the full balance owed.  In that case the penalty will be 0.5% of the balance due per month.  There is no maximum amount for this penalty so it can add up.  If you can’t pay your full balance by April 15th then you should try to pay as much as you can to reduce the penalty.  There is no late payment penalty if you don’t owe any tax money.  If this penalty is applied then the late filing penalty drops to 4.5%.

For example if you owe $1000 and you don’t pay for 6 months then the penalty will be $30 ( 6 x 0.005 x 1000).

Interest charged on balance due

The last penalty for late payment is interest – currently the IRS charges 4% interest on late payments.  This interest rate can change quarterly.

For example if you owe $1000 and pay 6 months late – then the interest charge will be $20 (2% of $1000).

What are my total charges on $1000 paid 6 months late?

Failure to file penalty:  4.5% of $1000 per month for 6 months = $270.  (This is only 4.5% because the late payment penalty is applied).

Failure to pay penalty:  0.5% of $1000 per month for 6 months = $30.

Interest:  4% annually for 6 months on $1000 = $20.

Total = $320 – in other words your tax balance due will have increased by 32%.  So get that return in!

More information

What happens if you didn’t file your taxes?

What if I messed up my taxes?

What should I do if I can’t pay my taxes?

What happens if you don’t file your tax return?

Do I need a tax attorney?

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{ 8 comments… read them below or add one }

1 Harry Boscoe

I think the failure to file penalty stops, by law, at 25% of the unpaid tax. IRC Section 6651, IIRC.

2 Four Pillars

Thanks Harry, that’s exactly what I said in the post.

3 Carole

My college student son wants to send his return in now, on the 19th. He only made $2,000 at a part-time job, but wants to get back the $136 in taxes he paid in. I know he is not even required to file, but is there any penalty involved because he is late?

4 Four Pillars

Carole – as I said in the post – penalties are only applied to money that is owing to the government. Late refunds have no penalty.

5 Mary

My partnership filed a late return and now is being assessed a penalty. My question is there were no taxes due from the partnership (all monies were paid out to the partners so the partnership had no income and therefore no taxes). Do penalties still apply when you file late even with no taxes due?

6 billy

I filed my 2008 return on august 29, 2009. Since i made like $2200 in odd petty jobs like construction etc. I am suppose to get a refund for $152 eventhough the preparer told me to send a check of $452 to the IRS first because of the self-employed category i think.
My question, how much of a penalty would i pay for filing on august 28, 2009 and would they keep my refund as their penalty fees.?

7 Tom Prichard

My accountant prepared my tax return after filing an extension. I owed money on the return and sent the money to the IRS. My accountant e-filed my return by the due date, and sold his practice that same month. Turns out my return got rejected and the new accountant wasn’t aware of the situation, so we filed a paper return (way late of course) and I got smacked with penalty. Anything I can do to get out of this penalty?

8 Kim Cafaro

Before paying any late filing penalty notice, review Rev. Proc. 84-35 to see if your partnership falls under the late filing penalty exception.

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