February 10, 2017

The IRS can charge a penalty if you fail to file a tax return, fail to pay a tax return, or both. The agency can also charge interest on any unpaid taxes.

The penalty for filing late is calculated based on the time passed from the deadline of your tax return to the date you actually file your tax return, including any extensions. The penalty is 5% of the unpaid taxes for every month or part of the month that your tax return is late. The penalty can be as much as 25% of your unpaid taxes. Note that this penalty takes effect even if you file one day late.

The usual due date for filing individual income taxes is April 15th, and the filing deadline may be extended to October 15th. If you file an extension to file and pay a minimum of 90% of your tax by the tax deadline, you will not need to pay a penalty if you fail to pay the balance remaining provided that you pay your taxes in full on or before the extended deadline.

If you file your tax return over 60 days after the due date or the extended due date, you will need to pay the minimum penalty—either 100% of the unpaid tax or $135—whichever is smaller. You will also need to pay a penalty for filing late if no tax is owed or if you are not expecting a refund.

A late payment penalty applies to any portion of a federal tax that remains unpaid as of the due date. For every month or part of the month that your tax remains unpaid, the IRS applies a failure-to-pay penalty of 0.5%. This penalty can reach up to 25% of your unpaid taxes.

If the penalties for both late filing and late payment apply in any given month, the maximum amount that can be charged for both penalties is 5% per month.

Note that the penalty for failing to file is typically higher than the penalty for failure to pay, so it would be best to file your tax return on or before the tax deadline, even if you cannot pay the tax or cannot pay it in full. By at least filing your taxes on time, you will only have to deal with one penalty instead of two.

Interest is also added to any unpaid tax from the time the tax payment is due until the date that the tax payment is made, and is calculated for every day that your due balance is not paid in full. It is assessed on the unpaid tax amount plus any penalties for late filing or late payment. Interest rates are variable, and the IRS determines them every quarter. Since 2010, however, the interest rate has been steady at 3%.

If you feel you have a valid excuse for why you were unable to file or pay your taxes by the given deadline, let the IRS know. The IRS can waive a penalty for failure to file or failure to pay at their discretion if you can establish that you had reasonable cause for not filing or paying your taxes on time and that it was not simply a case of willful neglect.

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