IRS Tax Penalties & Interest
What happens if i cant pay my taxes on time? How much interest can accumulate? what kind of penalties are there?
When Does the IRS Charge Penalties?
The IRS will charge penalty in multiple situations. The most common penalties are as follows:
- Failure to File
- Failure to Pay
- Failure to Pay Proper Estimated Tax
- Dishonored Cheque
Late Filing and Late Paying Penalties
April 15th is the usual deadline to get your taxes together, completed and sent to the IRS. If you file late, but, are owed money from your return there is then no penalty for filing late. However, if you owe the IRS and filed late there is a penalty and you will owe the penalty and interest on your return.
There are eight items that you should know about, if you file a late return:
- Two penalties can be applied – “Failure to File” and “Failure to Pay Penalty”
- Penalty for filing late – This penalty is usually 5% of your unpaid taxes, which will be applied monthly. This amount will not exceed 25%
- Minimum late filing penalty – If you are late by 60 days the minimum penalty is $135 or 100% of the unpaid taxes.
- Penalty for delinquent payment – usually a 0.5% per month, not exceeding 25%
- Combined penalty per month – If you owe both “Failure to File” and “Failure to Pay Penalty” the maximum amount per month won’t exceed 5%
- File even if you can’t pay – The failure to file penalty is typically about 10 times more than failure to pay. Even if you can’t pay in full, it is still the course of action to file and call the IRS to agree on a payment plan.
- Delinquent payment penalty may not apply – If you contact the IRS and request an extension to file and pay 90% of taxes owed there is a possibility that you won’t receive a penalty for failure to pay. You will however, need to pay the remailing 10% by the extended date.
- No penalty if reasonable cause – If you prove to the IRS that you have a reasonable case for not filing or paying on time there is a program that give you penalty relief.
To better assist you with dealing with the IRS and working with them to avoid penalty’s and interest, call Sheppard Law Offices today and we can speak to the IRS in your behalf.
IRS penalties and interest calculator
To calculate the interest and penalties on your income tax for the IRS, it would be a complicated mathematical equation to get the proper amount that is owed. For a quicker method there are online calculators for the following
- IRS Penalty Calculator
- IRS Interest Calculator
- Estimated Tax Penalty Calculator
- Deposit Penalty Calculator
- Tax Estimator
Use these calculators to calculate what you would be charged by the IRS if you don’t pay your taxes.
What is the IRS Interest formula?
The following is the formula to calculate the Interest amount that would have to pay for unpaid taxes:
- Interest Amount = Amount Owed * Factor,
- Interest Amount = Amount Owed * ((1 + Daily Rate) days – 1),
- Interest Amount = Amount Owed * (1 + Daily Rate) days – Amount Owed
What is the IRS Failure to Pay Penalty?
If a taxpayer fails to pay their IRS tax return in time they could then be hit with a penalty for failure to pay (FTP). If an individual is unable to pay their taxes, they are usually scared to contact the IRS. However, this is the best route to take that can cost you less money owed in the end. The IRS is willing to help if you have a good case as to why you couldn’t pay.
If it comes to having to deal with the IRS due to non-payment, it is best to contact a tax attorney, who knows the different routes that could work best in your favor. A tax attorney to speak to the IRS for you and get the best settlement possible, so your able to make monthly payments to the IRS and settle what you owe.
How Much is the IRS Failure to Pay Penalty?
The failure to pay penalty can range between 0.25% and 1% each month that a taxpayer doesn’t pay their taxes. The maximum payment for this penalty is 25% of your balance, once the amount owed reaches this percentage the penalty won’t accumulate anymore interest.
The most common FTP penalty is 0.5% per month. If you are then issued a levy and you don’t respond in the timeframe given this penalty will then increase to 1% each month.
What is the IRS Failure to File Penalty?
The failure to file penalty is applied to your account if you are late filing your taxes. The catch here though, is if you don’t owe but rather are owed money then you don’t have to worry about this penalty. In the opposite situation, you will owe a monthly penalty for failure to file, as well as hit with the failure to pay penalty.
How can I get a Failure to Pay or Late Payment Penalty Removed?
There are certain circumstances when a failure to pay or late payment penalty can be removed. The IRS offers what is called an abatement, to some taxpayers. If it is your first time receiving a FTP penalty, then you may be able to receive “first time penalty abatement”. To get this abatement, you need to call the IRS and give then a reasonable cause as to why you have not paid or are late paying.
What if I’m Unable to Pay the IRS in Full?
If your unable to pay the full balance of your taxes, there are multiple solutions you can consider. The best way to get the best solution for your situation is calling a professional tax attorney whom can look at your situation and find the best route to go to get the best settlement or payment plan for you.
What are the Interest Charges?
In the 90s the interest charges were higher then they are currently. It is now about half the percent that it was in the 90s. Below is a chart showing the interest percentage year over year:
- • Jan. 1, 1992–Mar. 31, 1992= 8%
• Apr. 1, 1992–Sep. 30, 1992= 7%
• Oct. 1, 1992–Jun. 30, 1994= 6%
• Jul. 1, 1994–Sep. 30, 1994= 7%
• Oct. 1, 1994–Mar. 30, 1995= 8%
• Apr. 1, 1995–Jun. 30, 1995= 9%
• Jul. 1, 1995–Jun. 30, 1996= 8%
• Jul. 1, 1996–Mar. 31, 1998= 8%
• Apr. 1, 1998–Mar. 31, 1999= 7%
• Apr. 1, 1999–Dec. 31, 1999= 8%
• Jan. 1, 2000–Mar. 31, 2000= 8%
• Apr. 1, 2000–Mar. 31, 2001= 9%
• Apr. 1, 2001–Jun. 30, 2001= 8%
• Jul. 1, 2001–Dec. 31, 2001= 7%
• Jan. 1, 2002–Dec. 31, 2002= 6%
• Jan. 1, 2003–Sep. 30, 2003= 5%
• Oct. 1, 2003–Mar. 31, 2004= 4%
• Apr. 1, 2004–Jun. 30, 2004= 5%
• Jul. 1, 2004–Sep. 30, 2004= 4%
• Oct. 1, 2005–Mar. 30, 2005= 5%
• Apr. 1, 2005–Sep. 30, 2005= 6%
• Oct. 1, 2005—Jun. 30, 2006= 7%
• July 1, 2006—Dec. 31, 2007= 8%
• Jan. 1, 2008—Mar. 31, 2008= 7%
• Apr. 1, 2008—Jun. 30, 2008= 6%
• July 1, 2008—Sep. 30, 2008= 5%
• Oct. 1, 2008—Dec. 31, 2008= 6%
• Jan. 1, 2009—Mar. 31, 2009= 5%
• Apr. 1, 2009–Dec. 31, 2010= 4%
• Jan. 1, 2011—Mar. 31, 2016= 3%
• Apr. 1, 2016—Jan. 31, 2017= 3.7%
• Feb. 1, 2017—Current= 4.04%
Need help with Tax Penalties & Interest?
Call Sheppard Law Offices today to help you with any tax penalties or interest questions or concerns. Here at Sheppard Law Offices we can speak to the IRS on your behalf to work out a settlement that is within your monthly budget.
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