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How IRS Fees & Penalties Are Set When You Owe

How IRS Fees & Penalties Are Set When You Owe

Of the more than 143 million taxpayers, you might think the IRS is worried enough and will never know whether you are paying your taxes late or not.

But no matter how busy the IRS is during tax season, you'll be penalized if you don't pay your taxes. Interest and penalties will start to accumulate overdue amounts when you don't pay what you owe by the due date.

Over time, the IRS may also forfeit a portion of your wages with each payment period until the debts are paid.

If you have no debt but are waiting for a refund, you could lose the money the government owes you. Taxpayers must file the return within the period of three years of the return due date, or they will lose the money owed by the IRS. The same rule applies to the application of tax credits, such as the Earned income credit (EIC).

In 2021, the 2020 tax filing deadline was May 17. If you haven't already, you should do it electronically today.

Types of IRS fines

- Late filing penalties

According to IRS regulations, penalties apply and are added to the bill if you owe taxes and don't file on time. The penalties are in addition to both the tax due as well as the interest on the tax due. The total penalties for late filing of the tax return are generally equal to 5% of the tax due for every month in which the tax return expired for up to five months (25%). If your return has exceeded 60 days overdue, the minimum late filing fee is $100 or 100% of the tax due, whichever is less.

- Late payment penalties

If you file your return early but do not pay all of the amounts owed on time, you will equally have to pay the penalty equal to 0.5% of the actual tax due for each month or part month, in which the tax remains unpaid from the due date until complete payment of the tax. There is no maximum penalty for non-payment.

Interest Rate

The IRS will charge interest on unpaid or late taxes, regardless of the cause. The covered period always begins on the original yield maturity date and ends when the IRS receives payment. You may have to pay extra for late filing or make a mathematical error on your tax return.

Interest will generally be charged on any unpaid tax from the date the return was originally due until the date of payment. The rate of unpaid tax interest is determined and recorded every three months. This is the federal short-term interest rate plus 3%. Interest is compounded daily.

How Is The Penalty Calculated?

We calculate the penalty for non-payment based on the length of time the unpaid taxes remain unpaid. Unpaid tax is the total amount of tax that must be shown on your return, less any amount paid by withholding tax, estimated tax payments and qualifying refundable credits.

The penalty for non-payment will not exceed 25% of the unpaid taxes.

We calculate the penalty for non-payment based on:

  • You do not pay the amount shown as tax on your return.

  • You do not pay the tax that you did not declare on your return.

Non-Payment Of The Taxable Amount On Your Return

If you do not pay the amount shown as tax due on the return, we calculate the default penalty as follows:

  • The penalty for non-payment is 0.5% of the unpaid tax for each month or a fraction of a month where the tax is not paid. The penalty cannot exceed 25% of the due taxes.

  • If the inability to file a tax return penalty and the non-payment penalty is applied in the same month, the non-payment penalty will be reduced by the non-payment penalty applied during that month. For example, instead of a 5% fine for not fulfilling the month's order, we would apply a fine of 4.5% for not receiving the order and a penalty of 0.5% for non-payment.

  • If you filed your tax return early and have an approved payment plan, the penalty for non-payment is reduced to 0.25% per month (or part of the month) during the agreed payment plan.

  • If you do not pay your taxes within 10 days of receiving our notification that we intend to impose the levy, the penalty for non-payment is 1% per month or a fraction of a month.

  • We charge the total monthly amount, even if you pay the full fee before the end of the month.



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