Penalties On Late Filed Tax Returns and Balance Due Tax Returns

It is important to file your tax returns by April 15th, regardless of whether you include payment of the balances due, as the IRS and state tax authorities impose substantial penalties for late filing and late payment of tax.

The penalty for late filing of your federal return is generally 5% of the amount due for each month or part of a month the return is late. The penalty generally does not exceed more than 25% of the tax due. If the return is more than 60 days late, the minimum penalty is $100 or the amount of the tax due, whichever is smaller. Similar penalties apply to your state return.

The penalty for late payment of the tax is generally 1/2 of 1% of the unpaid amount for each month or part of a month the tax is not paid. The penalty generally can't exceed 25% of the unpaid amount. A similar penalty applies to your state return.

In addition to the above penalties, the IRS charges interest on the balance due, which begins to accrue on the balance due beginning from the due date of the return. Similar rules apply to your state return.

If you are unable to pay the balance due in full, you should pay as much as possible with your returns to minimize the amount subject to penalties and interest. It may then be possible to file an installment agreement in which you specify the amount of tax you can afford to pay each month and the day of the month on which you will make the payment. You must file an installment agreement form with your tax return if you need this additional flexibility to pay the tax.