May 7, 2015

IRS Penalties and InterestIndividuals are generally given until April 15 to file their tax returns and pay any taxes they may owe for the year. In most instances, you will likely not have to pay any penalties—provided that your tax return was filed and the balance was paid by April 15.

If you fail to meet the deadline or did not pay enough taxes for the year, then you may be charged penalties, interest, or late fees on top of your tax obligation. In some situations, the IRS may charge you multiple penalties.

Late Payment Penalties

Late payment penalties apply for taxes that are unpaid by April 15. The amount starts at .05 percent of the taxes unpaid from the day after the taxes are due, and are assessed on a monthly basis. Each month that the taxes go unpaid, the penalties increase by another .05 percent, and can eventually increase to a maximum of 25 percent of the amount overdue if you have owed the IRS for over 24 months.

If your returns were filed on time and you set up an Installment Agreement with the IRS, then the late payment penalty is lowered to .25 percent. The penalty increases to 1 percent, however, if your tax remains unpaid after the IRS issues you a Notice of Intent to Levy.

Underpayment Penalties

Underpayment penalties apply if you did not make sufficient estimated tax payments or if you did not have enough tax withheld from your wages throughout the year. If at least 90 percent of the total taxes owed are unpaid by the end of the year, then you may be charged an underpayment penalty on the amount unpaid.

Underpayment penalties do not apply to individuals who owe less than $1,000 after applying estimated or withholding tax payments.


The IRS charges interest on outstanding tax balances. In such a case, interest is compounded on a daily basis, and accrues starting from the due date of the tax return until the day the taxes are paid. The interest rate is established quarterly.

Late Filing Penalties

A late filing penalty, also known as the failure-to-file penalty, is imposed if you owe tax to the IRS and failed to file your tax return in a time manner. This is the highest penalty imposed by the IRS.

The fee charged for filing a late return starts at 5 percent of the unpaid taxes each month. The amount of the late filing penalty will not go higher than 25 percent of the due balance, but if you are unable to file your return within 60 days from the original due date, then you will be charged a minimum penalty of 100 percent or $135 of your taxes owed—whichever is smaller.

There is, however, no reason to incur the late filing penalty. After all, you can be given six more months to file your tax return, provided that you file a tax extension by April 15. Although you will still accumulate payment interest and penalties on your unpaid taxes, you will at least avoid the hefty filing penalty if your return is filed within the allotted six-month period.



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