Did you know that you can get penalties for paying your taxes late? Here’s everything you need to know about tax penalties and how to avoid them.

Problems that arise with taxpayers are so numerous that the IRS publishes a yearly Data Book. Page 59 of the 2021 report shows the result of not filing taxes on time as a net assessment of $18,544,481 in taxes, penalties, and interest.

That same year the IRS accepted 15,154 offers in compromise, filed 212,251 liens, made 96 seizures, and entered into 2,361,646 installment agreements. Paying your taxes late can result in harsh penalties, but there are ways to avoid them.

Learn more about tax problems, penalties, and how to obtain relief in this guide.

IRS Penalties

The IRS may assess a penalty if you fail to meet your tax obligation. The kinds of taxes you owe may impact how severe that penalty is.

The IRS will send a notification letter explaining the penalty amount and reason. IRS notices include the following:

• Lack of information or payee statement
• Failing to file a tax return by the due date 
• Failing to pay the amount you owe by the due date
• Not claiming all income
• Taking deductions/credits you don’t qualify for
• Erroneous claim: you submit a refund or income credit for an excessive amount
• Failure to deposit employment taxes on time or accurately
• Tax preparer penalties: tax return preparer engages in misconduct
• Bounced check: your bank doesn’t honor your form of payment
• Corporate underpayment of estimated tax
• Individual underpayment of estimated tax
• Failing to report foreign financial activity

The IRS charges interest on penalties and continues to assess them until you pay the balance in full.

Quarterly Interest Rates

The IRS sets quarterly interest rates for the balance due on taxes. The rates vary depending on the interest category and quarter of the year. During 2022 interest rates are listed in order of 1st, 2nd, 3rd, and 4th quarters: 

• Non-Corporate overpayment: 3%, 4%, 5%, 6%
• Corporate overpayment: 2%, 3%, 4%, 5%
• Underpayment of corporate and non-corporate: 3%, 4%, 5%, 6%
• GATT corporate overpayment exceeding $10,000: 0.5%, 1.5%, 2.5%, 3.5%
• Large corporate underpayment: 5%, 6%, 7%, 8%
• Internal Revenue Code 6603 deposit: 0%, 1%, 2%, 3%

August 15, 2022, IRS notice IR-2022-150 announces interest rates for individuals is 6% per year, compounding daily, on overpayments and underpayments. This is an increase from 5% for the quarter that began July 1st.

The IRS makes quarterly adjustments to individual taxpayer rates. It is the Federal short-term rate plus 3% points.

What Causes Not Filing or Late Filing of Taxes?

It has a trickle-down effect. You don’t get your taxes done; before you know it, the year passes. When the next tax filing day arrives, you don’t want to draw attention to your prior year’s failure to file, so you skip filing again. Why do people allow this to happen?

• Laziness: you know the deadline but keep putting it off until the deadline passes
• Forgetfulness: you claim the need to file slipped your mind
• Confusion: you don’t understand the filing process, so ignore the responsibility
• Death or severe illness: amongst the chaos of a family emergency, your miss the filing date
• Inappropriate advice: the IRS may accept this after confirming the lousy advice is from a licensed tax professional
• Belief paying taxes is voluntary: this is a myth the IRS doesn’t accept and sends people to jail for
• Military deployment overseas: the Defense Department sends notice of active service members to the IRS
• Destruction of records: due to natural disasters, including fire, hurricanes, etc.
• Ignorance: ignorance of the law does not excuse your responsibility to file
• IRS unavailable to help: sometimes acceptable for late filing depending on the specifics
• Incarceration: No access to financial records or no income to report

Some of these reasons may allow you to escape interest and penalties from the IRS. Others will delay your agony. The best action is to consult a professional to determine how to remedy the situation.

Reasons for Paying Your Taxes Late

The IRS does not pursue tax evasion cases. If caught, you will have to repay the taxes and penalties for tax fraud. You may also receive a sentencing of up to five years in prison.

There is a wide range of problems that cause late payment of taxes. Some of the most common issues taxpayers face include the following:

• IRS tax lien: a claim against your property due to a tax debt
• Payroll tax: paying late results in a 10%-15% penalty
• Failure to file your annual income tax return
• Math errors: The IRS adjusts about 1.9 million returns every year
• Demand notice from the IRS that you owe money in back taxes
• Tax audits:89% of the 1.1 million IRS return audits owe additional tax
• Wage garnishment for the money you owe the IRS
• Underreporting income: approximately 3 million Americans underreport their income
• Misclassifying employees: penalties of up to $1,000 for each employee not correctly classified
• Failing to pay sufficient estimated tax: You must make estimated tax payments if you anticipate owing $1,000 or more in taxes
• Penalties: 29.5 million taxpayers face one or more of the 150 different IRS penalties every year
• FBAR penalty: a willfulness penalty for failing to file is the larger of 50% of the balance or $100,000

Foreign Bank and Financial Accounts (FBAR)  is an annual report due on April 15th of every year. There are civil penalties, criminal penalties, or both that you may receive for failing to comply with reporting and recordkeeping requirements. 

Late Filing Exceptions

Late filing is not always a problem. You can file late without penalty if you owe nothing in taxes or the IRS owes you a refund. These are the only times you can file late without a penalty.

You may stab yourself if you are due a refund. If you don’t file a return requesting the refund within three years of the original tax date, the IRS gets to keep your money. If you file before the time frame expires, you get your refund but no interest.

Failing to File vs. Failing to Pay

The best action is to file your tax return on time every year. You must file before midnight on tax day (usually April 15th) or file an extension. Filing an extension does not relieve your obligation to pay your taxes by April 15th to avoid interest.

Filing late taxes means receiving an assessment for a late filing fee. The filing fee is a percentage of the tax you owe.

It accumulates each month beyond the tax day that you don’t file. This fee varies from year to year.

The penalty becomes more extensive if you file 60 or more days before the filing deadline. It can even exceed the amount of the original tax due.

There are penalties for not paying your taxes on time. Penalties are lower than the late filing fee but still account for a percentage of the taxes you owe. They are assessed every month until paid in full.

In addition to the penalty, interest accrues on your bill beginning the day after the tax due date. The interest rate is based on the federal short-term interest rate plus an additional 3%. If the short-term rate is 2%, you will be paying 5% in interest.

Avoid Paying Penalties

You can avoid IRS penalties by providing accurate information on your returns, filing on time,  and paying the amount due by the deadline. Paying your taxes late is costly.

If you owe the IRS money and can’t pay, tax relief is available. Tax Relief Professional can help you reach an agreement with the IRS. Call (877) 469-1651 or use our online form to contact a tax relief expert today.