The Two Most Common Penalties for Late Tax Returns
The penalties you are most likely to be charged if you file your tax return late are the penalty for filing late and the penalty for late payment of tax.
Penalty for Filing Late (This penalty is officially referred to as the Failure to File Penalty) Individual income tax returns are due on April 15th. The return must be postmarked or electronically transmitted by this date. If you are unable to file the return by April 15th, then a valid request for an extension (Form 4868) must be filed (or e-filed). The extension will grant you until October 15th to file your tax return.
If you file after April 15th without an extension, or if you have an extension and file after October 15th, then you will be charged with a failure to file penalty for filing a late tax return if there is a balance due on the tax return when you file. The penalty is 5% of the balance due per month or partial month that the return is filed late. For example, if you did not have an extension and you filed your tax return on June 5th with a balance due of $1000.00, then the failure to file penalty would be 5% x 1000 x 3 months or $150.00. (April is a partial month, May is a full month, and June is a partial month, which totals 3 months/partial months for calculating the penalty.)
The maximum failure to file penalty is 25% of the tax owed, less any penalty for failure to pay (see next section) that was charged in the same month. Therefore, in any month that the failure to pay penalty was assessed, the failure to file penalty drops to 4.5%, so that the combination of the two penalties is not more than 5% of the tax owed for that month.
If the return is filed more than 60 days after the tax due date, including extensions, then the minimum failure to file penalty is $100.00 or the amount of the tax due, whichever is less.
Penalty for Late Payment (This penalty is officially referred to as the Failure to Pay Tax Penalty) This penalty is one that frequently causes confusion. Regardless of whether an extension is filed, the balance due on the tax return is payable by April 15th. Even if the return is filed before the extension date, the failure to pay penalty will apply to any balance due that was not paid by April 15th.
The failure to file penalty is initially 5% of the balance due per month or partial month that the balance due is late. (See Penalty for Filing Late for an explanation of how the months are counted).
The failure to file penalty increases to 1% after the IRS issues a notice and demand for immediate payment or 10 days after the IRS issues a notice of intent to levy.
This penalty is only .25% per month once an installment agreement is in effect if the return was filed by the due date and the payments are current.
The maximum failure to pay penalty is 25% of the tax owed. The penalty continues to calculate on the balance due each month until the balance is paid in full, or until the maximum 25% is reached.
The failure to pay penalty may not be charged if 90% of the tax due was paid before April 15th.
As noted above, in any specific month, the maximum combined penalty for failure to file and failure to pay penalty is 5%.