If you don't pay your federal taxes, the Internal Revenue Service (IRS) will issue penalties against you. There's more than one penalty associated with not filing, and the penalty you receive will depend on your situation and the amount of time that passes before you pay your tax in full.
Many taxpayers are unaware of how much a penalty will grow once it's been issued, enlarging their tax debt further. If the IRS has assessed a failure-to-pay penalty against you, an experienced California tax attorney can help.
IRS Penalty for Unpaid Taxes
The IRS issues three types of penalties for unpaid taxes:
- Failure to file
- Failure to pay
- Failure to pay the proper amount of estimated tax
For all unpaid taxes, the IRS collects interest. Interest starts accruing from the date of the tax return and continues until you pay the full amount. The interest rate is the federal short-term rate (determined quarterly) plus 3 percent, compounded daily. The IRS charges interest in addition to the penalty, which varies based on which penalty you receive.
Failure-to-File Penalty
The failure-to-file penalty is 5% of the tax balance due for every month (or partial month) that your taxes go unpaid. This penalty can't go beyond 25% of your unpaid taxes, however. If you also receive a failure-to-pay penalty, it will reduce the amount you owe for the failure-to-file penalty.
Keep in mind that even if you request an extension to file your taxes, you will not receive an extension to pay your taxes. Your taxes are still due on the original due date. If you get an extension to file and choose not to pay until the extension date, the IRS might charge you interest on your outstanding tax balance.
Failure-to-Pay Penalty
The failure-to-pay penalty is one-half of 1% for each month (or partial month) that the tax remains unpaid. The penalty starts on the due date of the return and continues until the tax balance is paid in full. The maximum for the failure-to-pay penalty is 25%. If the IRS sends you a notice of intent to levy property and you don't pay your tax debt within 10 days of receiving the notice, the one-half of 1% rate goes up to 1%.
Failure-to-Pay Estimated Taxes
If you didn't pay enough tax throughout the year, either by making estimated payments or withholding the right amount from your paychecks, you will receive the underpayment of estimated tax penalty. Whether you owe this tax penalty or not isn't always straightforward. A qualified tax professional can help you determine if you owe this penalty and how you can handle it.
Tax Disputes
The IRS does allow you to dispute penalties if you disagree with them. Usually, when you receive notice of the penalty, the letter will include instructions for how to proceed if you wish to appeal. A professional can help you challenge the penalty, negotiate a reduction, or set up a payment plan.
Questions About Your IRS Tax Penalty
Do you have a failure-to-file or failure-to-pay penalty and aren't sure how to proceed? Contact a California Tax Attorney to discuss options for reducing or relieving your penalty and your tax debt.