IRS Failure to Pay Penalty: Penalties For Not Paying Taxes
The IRS failure to pay penalty is assessed by the IRS whenever you don’t pay your taxes on time. The basic penalty rate is 0.5% of the amount of your unpaid taxes per month.
The IRS can also charge the failure to file penalty and interest if you don’t file a return or pay your taxes. This penalty will increase the amount you owe each month until you work out a resolution with the IRS.
When the IRS Charges the Failure to Pay Penalty
The IRS charges the failure to pay penalty in either of the following scenarios:
- You owe a tax liability on your return and don’t send full payment by the tax filing deadline.
- The IRS sends you a Notice and Demand for Payment, and you fail to submit full payment within 21 days.
The IRS will still charge the failure to pay penalty if you request an automatic six-month filing extension. Getting a filing extension allows you to avoid the failure to file penalty, but not the failure to pay penalty.
How the Failure to Pay Penalty Is Calculated
The IRS assesses a 0.5% penalty each month. If your payment is one day late, the IRS charges the whole penalty for that month.
The maximum failure to pay penalty amount is 25%. If the IRS is charging you both the failure to file and failure to pay penalty in a given month, then the combined amount is 5% per month.
The IRS charges a reduced failure to pay penalty to some taxpayers who have entered into installment agreements. If you filed your return on time and are an individual taxpayer, a failure to pay penalty of only 0.25% will be charged once your IRS installment agreement has been approved.
The failure to pay penalty rate can also increase when a taxpayer fails to send payment within ten days after receiving a Notice of Intent to Levy. In these cases, the penalty rate becomes 1% per month.
Failure to Pay vs. Failure to File
The failure to file penalty is 5% per month or 10 times the amount of the failure to pay penalty. When the IRS assesses both penalties simultaneously, the failure to file penalty is reduced to 4.5%.
Because the failure to file penalty is much higher, you’ll reduce your overall tax penalties by filing your return on time, even if you can’t pay your full tax bill. You can then negotiate a payment plan or use another tax resolution option.
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Failure to Pay vs. Underpayment Penalties
The failure to pay penalty applies once your return is due, which is typically around April 15th. The underpayment penalty applies when you fail to pay enough in taxes throughout the year.
Employees can adjust their withholding using Form W-4, while self-employed taxpayers can modify their estimated tax payments to avoid underpayment penalties. As long as you meet one of the IRS safe harbor amounts, the IRS won’t charge any underpayment penalties.
Interest Charged on Late Tax Payments
You’ll also be charged interest each month on your unpaid taxes. The IRS interest rates are determined each quarter by taking the federal short-term rate and adding 3%.
The IRS set interest rates at 6% for the first two quarters of 2019. While penalties can sometimes be abated, interest is generally only removed if the IRS has made some kind of error.
Avoiding the Failure to Pay Penalty
Pay as much as possible by your tax return due date. Even if you can’t pay the full amount, this will reduce the unpaid balance and the amount of penalties you’ll face.
File your return on time. Filing on time avoids the failure to file penalty and makes you eligible for the reduced failure to pay penalty if you enter into an installment agreement.
You should also double-check your withholding amounts or estimated tax payments. Doing so may allow you to avoid a big tax bill when you file your return.
Removing the Failure to Pay Penalty
The IRS offers several types of penalty abatement, including:
- First-time penalty abatement
- Penalty relief due to reasonable cause
- Statutory exceptions
You should determine if you may qualify for any of these penalty relief programs and submit a penalty abatement request. Abatement could save you a significant amount of money if the IRS has charged a lot of tax penalties.
Tax Resolution Options When You Can’t Pay in Full
Help With Unpaid Taxes & Penalties
The IRS offers several types of payment plans with flexible terms. However, if you can’t afford to make monthly payments, you may want to consider other tax resolution options.
An Offer in Compromise allows you to settle your unpaid taxes for less than you owe. There are strict requirements qualify, but eligible taxpayers may be able to settle their tax debt for pennies on the dollar.
You may also be able to request innocent spouse relief if your tax debt comes from a joint tax return. Finally, you can ask the IRS to classify your account as currently not collectible due to financial hardship. Currently not collectible will allow you to avoid bank account levies or wage garnishments temporarily.
Contact a tax professional to discuss penalty relief and other IRS tax resolution programs.
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Tax Penalty Help & Related Topics
Penalty Abatement Guide
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Sample Abatement Letter
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Penalty for Late Tax Payments
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