The IRS imposes penalties for late payment of tax, for late filing of a tax return, or both. The IRS also charges interest on any unpaid tax.
Penalty for Failure to PayThe late payment penalty applies to any portion of federal tax that is unpaid as of the payment due date. For each month or part of a month that the tax remains unpaid, the IRS imposes a failure-to-pay penalty of half of one percent (0.5%). The late payment penalty cannot exceed 25% of the net amount of the tax due. The IRS may waive the penalty if the taxpayer can show there was a reasonable cause for the late payment. (Internal Revenue Code section 6651 paragraphs (a)(2) and (b)(2).)
Penalty for Failure to FileThe late filing penalty applies to any portion of tax that is unpaid as of the payment due date and the tax return is filed after the filing due date. The failure-to-file penalty is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually file your tax return. The penalty is 5% for each month or part of a month that the tax return is late, up to a maximum penalty of 25%. "If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax" (from Publication 17, section on penalties). The late filing penalty is based on the net amount of tax due as shown on the tax return. This penalty can be waived at the discretion of the IRS if taxpayer can show that the return was filed late due to a reasonable cause. (Internal Revenue Code section 6651 paragraphs (a)(1) and (b)(1).)
InterestInterest is typically added to any tax unpaid from the time that the payment of tax was due to the date of payment. Interest rates are set by the IRS every three months. Currently, the IRS interest rate for underpayments of tax is 3% per year. The interest is calculated for each day your balance due is not paid in full. Interest is assessed on the unpaid amount of tax plus any late filing or late payment penalties. (Internal Revenue Code section 6601.)
IRS interest rates are variable and are set quarterly. For historical IRS interest rates, see this chart at TaxAlmanac.org.
Penalty Relief Available for the Year 2013For the year 2013, the IRS is offering the following penalty relief programs:
The IRS will waive the failure-to-pay penalty for taxpayers whose year 2012 federal tax return contains any of the thirty-one tax forms that were published late in the tax season, provided that the taxpayer filed an extension and subsequently filed the return and paid any tax due by the extended due date. IRS is not waiving interest.
- Relief Available To Many Extension Requesters Claiming Tax Benefits (IR-2013-31) and Notice 2013-24 (pdf).
The IRS will waive the failure-to-file and failure-to-pay penalties for taxpayers impacted by the Boston Marathon explosion and severe storms in the South and Midwest. The IRS is not waiving interest.