The IRS applies late filing penalties when taxpayers fail to submit or pay their tax returns on time. The failure-to-file penalty is typically 5% of the unpaid tax, with a maximum of 25% every month or portion of a month that the return is late. When you file, the penalty stops accumulating. If your return is more than 60 days late, the minimum failure-to-file penalty is $435 or 100% of the tax owed, whichever is less.

In addition to the failure-to-file penalty, the IRS imposes a failure-to-pay penalty of 0.5% of the outstanding taxes for each month or portion of a month that the tax is still owed. The failure-to-pay penalty, like the failure-to-file penalty, is limited to 25% of your tax liability.

Combined Penalties

If both penalties are imposed in the same month, the failure-to-file penalty is lowered by the failure-to-pay penalty. This results in a 5% aggregate penalty for each month or portion of a month that your return is late. For example, if you owe a 5% failure-to-file penalty and a 0.5% failure-to-pay penalty, the IRS will levy a 4.5% failure-to-file penalty and a 0.5% failure-to-pay penalty.

Payment Options

Even if you can’t pay the entire amount owed, you should file your income tax return as quickly as possible. This can help decrease late filing fines. You should also consider applying for an IRS payment plan. They provide both short-term plans (180 days to pay in full) and extended plans (up to 72 months) based on your tax status and amount of outstanding payments. Certain payment arrangements can be set up online without having to contact the IRS.

Penalty Abatement and Special Circumstances

Taxpayers with a valid excuse for not submitting on time may be eligible for penalty reduction. First-time abatement is available to people who have filed and paid on time without penalty for the previous three years. This enables taxpayers to request a reduction or remission of fines. However, interest costs are not eligible for reduction under this plan. Special filing deadlines apply to persons residing outside the US, those serving in the military overseas, and taxpayers in federally declared disaster regions.

Extensions and Online Resources

Taxpayers who filed a tax extension will have till October to submit their taxes. It’s worth noting that any taxes payable for the 2023 tax year were still due on April 15, 2024. To learn more about your tax status, visit the IRS website and access your federal income tax account online. This allows you to go over your tax returns, make or view payments, and create payment plans.

Filing as promptly as possible and paying what you’re able to can help to reduce potential fines.

Filing your taxes electronically is the shortest method to send them to the IRS. Your partners at PSA CPA are always happy to look over your tax documents and help determine the best plan of action! Give us a call at 301-879-0600 to book an appointment.