IRS Penalties

Common IRS Penalties

Did you forget to pay your taxes this year, or worse, forget to file? Although there may be legitimate reasons why you failed to meet the tax deadline, the IRS will impose tax penalties until you get back on track or pay your tax debt in full. Even if you did file and pay on time, there could be penalties assessed if your return contained errors or your payment was rejected. Depending on your situation, here are some of the IRS penalties you could face.

Failure-to-File Penalty

A failure-to-file penalty of 5% of your unpaid taxes will be imposed if you miss the filing deadline. This penalty is assessed each month, for up to five months. If your tax return is more than 60 days late, you will face a minimum fine, or an amount equal to the tax debt owed, whichever is smaller. The minimum fine varies based on the original filing year:

$135 for tax returns due between 1/1/2009 and 12/31/2015
$205 for tax returns due between 1/1/2016 and 12/31/2017
$210 for tax returns due between 1/1/2018 and 12/31/2019
$435 for tax returns due on or after 1/1/2020

The interest compounds daily and is added to your unpaid tax until it is paid in full. The longer you wait to deal with your unfiled tax returns or back taxes, the more you’ll owe.

Failure-to-Pay Penalty

The failure-to-file penalty can be assessed for taxes not paid, regardless if you file a tax return or not. The penalty is .5% per month on the taxes owed until they are paid in full. The charge applies even if you pay before the end of the month, and maxes out at 25% of the total owed.

Underpayment Penalty

America is a pay-as-you-go tax system, which means you must pay income tax as you earn it throughout the year. This is typically done through withholding on your paycheck or estimated tax payments. If you expect to owe more than $1,000 in taxes, and do not pay enough, you could face an underpayment penalty of the estimated tax. The amount will vary based on when the payment should have been paid and the interest for that period.

Bad Payment Penalty

The IRS will charge a $25 penalty fee, or the amount of the payment (whichever is less), for returned payments that are less than $1,250. For bad checks or other rejected payments over $1,250, the fee is equal to 2% of the declined payment amount.

Request IRS Penalty Relief

The IRS offers tax penalty relief for people who were unable to pay their taxes because of unforeseen circumstances and other reasons. If you’re due a refund and did not file, the failure-to-file penalty is automatically waived. For those who have not paid their taxes, there are three types of tax penalty relief available:

Reasonable Cause

The IRS may waive your penalty fees if there is a legitimate reason why you did not file or pay your taxes on time. Lack of money is not generally not cause for a waiver. The reasons why you don’t have enough money, however, may meet the criteria for the fee waiver. In general, the following reasons will warrant a waiver, if adequate evidence is provided:

Natural disasters (fire, floor, hurricanes, etc.)
Death or serious illness (you or an immediate family member)
Incapacitation or unavoidable absence (you or an immediate family member)

The IRS may also consider other reasons where you can show you used “ordinary business care and prudence” to pay your taxes on time, but were unable to do so.

First-Time Penalty Abatement

To qualify for first-time penalty abatement, you must meet the following criteria:

You have no penalties for the last three tax years prior to receiving the penalty, or you weren’t required to file a tax return;
All of your required tax returns have been filed, or you’ve requested an extension; and
You have paid your taxes in full, or made arrangements to pay your tax debt (payment plan)

If you are seeking relief for a failure-to-pay penalty, it is best to wait until your tax debt is paid in full before requesting a first-time penalty abatement.

Statutory Exception

A statutory exception is typically granted in cases where the IRS provided incorrect written advice. To receive penalty relief, the following may be required:

Your request for IRS advice (in writing)
Proof of the incorrect advice provided by the IRS that you relied upon
Documentation showing any tax penalties and adjustments made that are related to the incorrect advice

You may request administrative relief (statutory exception) by phone or mail. Of the three types of penalty relief available, this one is harder to prove and receive.

Don’t let IRS penalties get out of hand. Contact Tax Defense Network today. We can help you manage your tax debt and keep the penalties from adding up.

Tax Defense Network

“I was in a situation where I owed more penalties and interest than back taxes, and I had let it go on far too long due to financial constraints. The IRS became more aggressive as the statute of limitations approached, so I contacted TDN. They always called or emailed when they said they would and followed up at every point in the process. TDN was able to obtain a much better resolution than I anticipated, so I have to say they exceeded my expectations.”

— Dennis W.

Common Questions About IRS Penalties

Q: Is interest relief available?

Q: Can I pay my tax penalty online?

Q: Are tax penalties and interest deductible?

Q: Can I pay my IRS penalties in installments?

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IRS Penalties Can Push You Deeper Into the Tax Debt Pit.