What is the IRS Failure to File Penalty For Not Filing Taxes?

The IRS failure to file penalty is one the most common and harshest penalties out of about 140 different penalties that the IRS has. Most people don't know this, but the IRS failure to file penalty is actually charges a monthly penalty that is 10 times more than the failure to pay penalty. Do you know why this is? Many individuals believe that if they cannot pay their taxes owed they should just hide from the IRS and the IRS knows this. The IRS wants to encourage these people to come forward and file their taxes and work with the IRS on the taxes they owe, even if they can't pay in full.

How the Failure to File Penalty is Calculated

The failure to file penalty starts being calculated the day after the due date for filing your tax return. The typical due date for filling a tax return is April 15th if an extension has not been made. If an extension has been filed for and accepted before the April 15th due date then the due date is October 15th. If you have requested an extension to file and did not pay at least 90% of the taxes you owe by April 15th you will be charged the failure to pay penalty between April 15th and October 15th, if the balance still remains unpaid and unfiled after the October 15th deadline then the failure to file penalty will kick in.

• Failure To File Penalty Due Date April 15th: There will be a 5% penalty that starts to add up on April 16th. The penalty is calculated based upon the original amount of taxes owed (which means it is calculated on original tax amount owed and doesn't take into account additional penalties and interest). The maximum penalty for failing to file by the due date is 25%, which is reached within 5 months, or September 16th of the same year after the due date. If the taxes are not filed within 60 days of the due date then the minimum penalty must be the lesser of $135 or 100% of the unpaid tax amount.


• Failure to File Penalty Due Date October 15th: There will be a 5% penalty that starts to add up on October 15th. The penalty is calculated based upon the original amount of taxes owed. The maximum penalty for failing to file taxes for a given tax year is 25%, which is reached within 5 months, or March 15th of the same year after the due date. One thing to note is that if you do not pay 90% of your taxes by April 15th you will be charged a failure to pay penalty that is .5%. You will be charged the .5% between April 16th and October 15th and when the failure to file penalty kicks in on October 16th you will pay the combined penalty which is 4.5% for the failure to file penalty and .5% for the failure to pay penalty. Once this combined penalty maxes out at 25% and you still have not paid, you will continue to be charged the failure to pay penalty of .5%.


• Failure to File Penalty Due to Fraud: If you have failed to file with the intent to commit fraud then the IRS significantly increase this penalty. The failure to file penalty will increase from 5% a month to 15% a month and can reach a maximum of 75% of the original taxes owed instead of the normal 25%. This is a rare penalty, but the IRS will use it if there was an obvious attempt at tax fraud.

Reducing or Removing the Failure to File Penalty

The IRS has the power to reduce or eliminate the penalties that it has charged if you make the proper type of request. In-fact, about 33% of all penalties that the IRS charges are later removed. It is not that difficult to have penalties removed if you have "reasonable cause". What reasonable cause means is that you have a valid excuse for not filing your taxes on time. The IRS has accepted a huge variety of excuses and determines each excuse on a case by case basis. The term for removing penalties is called "Penalty Abatement". There are many ways to file for penalty abatement and if you have been charged a significant amount of penalties it is always good to look into if you will qualify for this. The IRS does understand that circumstances that do arise that keep taxpayers from being compliant with taxes, penalties are automatically charged to anyone that is not compliant but can be removed fairly easily with reasonable cause.

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