IRS Penalties play a critical role in ensuring compliance with tax laws, as submitting your annual tax returns is a duty incumbent upon most individuals. Understanding the nuances of tax payments, penalties, and deadlines is crucial to avoid unnecessary financial burdens. The Internal Revenue Service (IRS) enforces these regulations to promote adherence and provides assistance and resources for those who may find it challenging to meet these obligations on time.

April 15 stands out in the collective consciousness of taxpayers as the Federal tax deadline cutoff date for submitting personal income tax returns and settling any due taxes. Yet, the unpredictability of life may sometimes hinder on-time adherence. The IRS scrutinizes your tax submission for precision, and should any inconsistencies emerge or any taxes, penalties, or interest be outstanding, you will receive a bill indicating so.

The article outlines several IRS penalties related to tax filing and payment obligations, and steps for avoiding tax penalties

IRS Penalties

Late Tax Payment Penalty

If you file your tax return but fail to pay all the taxes owed on time, you incur a late payment IRS penalties.

• Penalty Rate

The penalty is one-half of one percent (0.5%) for each month or part of a month that the tax remains unpaid, up to a maximum of 25% of the unpaid tax amount.

• Increased Penalty Rate

The penalty rate increases to one percent (1%) if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property.

• Reduced Penalty Rate with Installment Agreement

If you file your return by the due date and request an installment agreement, the penalty rate decreases to one-quarter of one percent (0.25%) for any month an installment agreement is in effect.

• Order of Payment Application

  The IRS applies payments first to the unpaid tax, then to any penalty, and finally to interest.

• Penalty Amount on Bill: The penalty amount shown on your bill represents the total amount of the penalty up to the date of the notice, not a monthly charge.

Failure-to-File Penalty

If you owe tax and don’t file on time, you incur the failure-to-file IRS penalties

• Penalty Rate

The penalty is five percent (5%) of the tax owed for each month or part of a month that your return is late, up to a maximum of 25%.

• Minimum Penalty for Being Over 60 Days Late

If your return is more than 60 days late, there’s a minimum late filing penalty. This penalty is the lesser of $485 (for returns required to be filed in 2024) or 100 percent of the tax owed.

Interest on Unpaid Tax

Interest accrues on any unpaid tax from the return due date until the payment is made in full. The interest rate is the federal short-term rate plus 3%, compounding daily.

Penalty Abatement for Reasonable Cause

The IRS may abate penalties for filing and paying late if you can show reasonable cause for the delay and that the failure wasn’t due to willful neglect. However, interest charges generally are not abated and will continue to accrue until all assessed tax, penalties, and interest are fully paid.

How to avoid IRS Penalties

Avoiding IRS penalties associated with tax filing and payment requires proactive planning and adherence to IRS guidelines. Here are strategies to help you steer clear of these financial penalties:

File on Time

Ensure you meet the April 15 deadline for filing your tax return. If you anticipate a delay, file for an extension by the same date, which extends your filing deadline to October 15. However, remember that an extension to file is not an extension to pay any taxes owed.

Pay Taxes Owed by Due Date

Even if you file for an extension, estimate and pay any owed taxes by the original April 15 deadline to avoid late payment penalties.

Utilize Electronic Filing

Electronic filing (e-filing) is faster and often more accurate than paper filing, reducing the likelihood of errors that could lead to penalties.

Set Up an Installment Agreement

If you’re unable to pay the full amount owed, apply for an installment agreement with the IRS. This can reduce the late payment penalty rate while you make monthly payments.

Check Your Work for Accuracy

Double-check your tax return for any errors in income, deductions, and credits. Utilizing tax preparation software or consulting with a tax professional can help minimize mistakes.

Pay As Much As You Can

If you cannot pay the total amount owed, pay as much as you can by the deadline to reduce the amount subject to penalties and interest.

Respond to IRS Notices Promptly

If you receive a notice from the IRS, respond promptly to avoid further penalties and to arrange for payment plans if necessary.

Keep Good Records

Maintain thorough records of your income, deductions, and tax payments. Good record-keeping can support your case if you need to request penalty abatement for reasonable cause.

Request Penalty Abatement if Applicable

If you face IRS penalties due to circumstances beyond your control (e.g., illness, natural disaster), request an abatement of penalties. You’ll need to provide evidence of your situation and demonstrate that you made a good faith effort to comply with tax laws.

Stay Informed on Tax Law Changes

Tax laws can change from year to year. Staying informed on these changes can help you make the right decisions to avoid unexpected tax liabilities and penalties.

By following these guidelines, you can minimize the risk of incurring penalties and ensure that your tax filing process is as smooth and penalty-free as possible.

How to make Tax Payment

The IRS Payments page offers the most convenient electronic payment methods for settling your federal taxes. If you choose to pay by mail, remember to include the tear-off portion of your bill and use the provided return envelope. To ensure your payment is accurately applied to your account, please follow these steps:

• Make your check or money order out to the United States Treasury.
• Write the primary taxpayer’s taxpayer identification number (Social Security number, individual taxpayer identification number, or employer identification number) on it.
• Specify the tax year and form number.
• Include your name, address, and phone number on the payment.
• Avoid sending cash.

Reference – https://www.irs.gov/taxtopics/tc653