April 15 is the tax day deadline for most people. If you are getting a refund, there is no penalty if you file a late tax return. But if you owe taxes and you don’t file and pay on time, you’ll usually owe interest and penalties on the taxes you pay late.
Here are 10 facts that you should know about tax penalties:
- If you owe federal taxes and file late, two penalties may apply:
- a failure-to-file penalty for late filing and
- a failure-to-pay penalty for paying late
- The failure-to-file penalty is usually a lot more than the failure-to-pay penalty - in most cases, it’s 10 times more! Even if you can’t pay what you owe by the due date, you should still file your tax return on time and pay as much as you can.
- The IRS will work with you to figure out ways to pay your tax debt. You may be able to set up a payment plan with the IRS using the Online Payment Agreement tool on IRS.gov. You can also call Vermont Legal Aid’s Low-Income Taxpayer Clinic at 1-800-889-2047 for advice about your tax debt.
- If you are advised to use a home equity loan or credit card to pay a tax bill, you should make sure you understand the risks of doing so. You can call GreenPath Debt Solutions at 1-800-550-1961 or go to the GreenPath Debt Solutions website for advice about paying debts.
- The failure-to-file penalty is usually 5% of the unpaid taxes for each month or part of a month that a tax return is late. It will not be more than 25% of your unpaid taxes.
- If you file your return more than 60 days after the due date or the extended due date, the minimum penalty for late filing is $205 or 100% of the unpaid tax – whichever is less.
- The failure-to-pay penalty is usually ½% of your unpaid tax amount. You are charged starting the day after taxes are due. You will be charged for each month or part of a month that you don’t pay your taxes. The penalty can add up to as much as 25% of your unpaid taxes.
- The most you can be charged in one month is 5%, even if the 5% failure-to-file penalty and the ½% failure-to-pay penalty both apply in that month.
- If you asked for an extension (more time) to file your income tax return and paid at least 90% of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.
- You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you did not file or pay on time for reasons that you could not have expected and that were beyond your control.
First Time Abatement (Removal) of Tax Penalties
You may be able to get tax penalties removed if:
- This is the first time in three years you have had a penalty because of late filing or payment.
- You have filed all required tax returns.
- You have paid or made arrangements with the IRS to pay the taxes you owe.
You can request that late tax filing or payment penalties be removed by writing a letter or by calling the IRS at 1-800-829-1040.