If you owe taxes, the Internal Revenue Service will calculate penalties and interest on the amount owed. If you have a refund, the IRS may pay you interest on the delayed refund. (Note the difference between “will” and “may” – the IRS generally pays interest on refunds that have been delayed because of slow processing by the IRS. Since most late tax
returns take longer to process, the IRS “may” pay you interest on based on the extra amount of time it takes them to process your return.) If you have a refund, there is no penalty for filing late. Penalties are calculated on the amount due. Since there is no amount due, there is no penalty.
If you have a balance due on a late tax return, the IRS will calculate additional penalties and interest. There are three separate penalties:
- Failure to File Penalty
- Failure to Pay Penalty
- Interest
Each of these penalties are calculated differently so we will look at each one individually.
Late Pay Penalty/Failure to File: The failure-to-file penalty is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually filed your tax return. The penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25%. The percentage is of the tax due as shown on the tax return. If your tax return is more than five months late, simply multiply your balance due by 25% to calculate your failure to file penalty.
Failure to Pay Penalty: The failure-to-pay penalty is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full. There is no maximum limit to the failure-to-pay penalty. The penalty is calculated from the original payment deadline (the original April 15th filing deadline) until the balance due is paid in full.
Interest: Interest is calculated based on how much tax you
owe. Interest rates change every three months. Currently, the IRS
interest rate for underpayment of tax is 4% per year. The interest is calculated for each day your balance due is not paid in full.
So what can you do to make sure that your taxes are paid on time, and in full? You can come into Check City or visit us Online to see about our great Tax Discounts we have going on right now, or you can plan ahead. Make sure that as soon as you get your W2 statement you start working on your taxes, especially if you are planning to itemize deductions so that you have enough time to get them in by April 15th. Also, if you owe taxes right now, or find that you owe in the future, it is better to file sooner rather than later. The longer you wait the more penalties you will receive. You may file for a tax extension, but try to finish as soon as you can. Four months should be plenty of time to get your taxes done, but if you are still having problems, visit us at Check City. We have knowledgeable professionals who are willing to help you get your taxes done on time and done right. They will also help you get the most out of your deductions.
