Posted by Dennis Jao

The Importance of Meeting Tax Return Filing & Payment Deadlines

The Importance of Meeting Tax Return Filing & Payment Deadlines

The May 17 deadline for filing your income tax is just a day behind us and if you’ve gotten an extension for your 2020 return, there will be penalties imposed by the IRS. If you’ve also passed the Corporate filing deadline, here are the basic rules.


Failure to pay (non-payment)

There are different penalties for failing to pay and failing to file. The penalty for failure to pay is ½% for each month (or partial month) of late payment. For example, if payment is due on May 17 and is made on June 22, the penalty is 1% (1/2% multiplied by two months or partial months). The maximum penalty is 25%.

The penalty for failure to pay is based on the amount shown as due at the time of filing (fewer credits resulting from amounts paid for withholding or estimated payments), even if the actual tax bill is higher. Alternatively, if the actual value of the tax is lower, the penalty will be based on the lower amount.

For instance, if your payment is three months late and your statement says you owe $5,000, the penalty is 1 percent, which equals $50. If you are audited and your tax bill increases by another $1,000, the payment penalty does not increase because it is based on the amount shown on the return as due.


Failure to file

The penalty for failure to file has a more severe percentage of 5% per month (or partial month) of lateness up to a maximum of 25%. If you receive a file extension (until October 15), you won't be filing late unless you miss the extended deadline. However, a filing extension does not apply to your payment responsibility.

If ½% of the penalty for non-payment and the fine for failure to file are applied, the penalty for failure to file is reduced to 4.5% per month (or partially); therefore, the total penalty is 5%. The maximum total penalty for the first five months is 25%. After that, the penalty for non-payment may continue at 1/2% per month for an additional 45 months (an additional 22.5%). Therefore, the combined penalties can reach 47.5% over time.

The penalty for non-filing is also more severe, as it is based on the amount to be included in the refund and not just the amount owed. (Credit is given for amounts paid by withholding or estimated payments. Therefore, if no amount is due, no late filing penalty will be applied.) For example, if an application is filed three months late, indicating $5,000 due (after payment credits), the penalties would be 15%, which equals $750. If it is determined that the actual tax payable is an additional $1,000, the failure to file penalty ( which is 4.5% × 3 = 13.5%) would also apply for an additional $135 in penalties.

A minimum penalty for failure to file will be applied even if you file your return more than 60 days late. This minimum penalty is less than $210 or the amount of tax that should appear on your return.


A reasonable reason

The IRS can waive both penalties if the delay is due to "reasonable cause." Common qualifying excuses include severe illness or death of close relatives and postal irregularities.

As you can see, filing and late payment can get expensive. In addition, in particularly abusive situations involving a fraudulent failure to file, the late filing penalty can reach 15% per month, with a maximum of 75%. Contact a qualified tax professional such as DENNIS JAO if you have any questions or need to prepare your return.


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Dennis Jao
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