The dreaded tax season is over. Tax Day has come and gone and the deadline to file and pay is now passed. But what the heck happens now if you missed the tax deadline?
We’re talking specifically about federal income tax penalties here. You’ll need to look up your own state penalties as each state will be different.
We’re not getting into it here, but there are penalties for late payroll taxes that are much more severe than the income tax penalties we’ll get into. I strongly encourage you to use a professional payroll service. There are too many ways to mess it up. It’s just not worth it. We know of a business owner that refuses to switch to using a payroll service and does it on his own with a float method. They have paid much more in penalties than they would have in fees for our services.
Enough with the payroll tangent. Let’s get to the income tax late penalties.
Two Different Penalties
LATE PAYMENT PENALTY
The instant you are late paying your federal income taxes, fees of 0.5% per month on the amount you owe up to 25% max, will begin to be added to your tax payment obligation.
Say you owe $10,000 and you haven’t paid any taxes.
Late Payment Penalty Calculation
$10,000 x 0.5% = $50
You’ll now owe $10,050 and $50 will be added each month until it’s paid.
*There is NO option to extend the deadline for payment.
But the penalty only accrues on what you currently owe. So, making an estimated or even a partial payment is better than nothing. It will decrease any fees.
LATE FILING PENALTY
This penalty works the same way, only the fee itself is much larger at a full 5% per month on the amount you owe up to the same 25% max will be added to what you owe.
Again, let’s say you owe $10,000 and missed the tax deadline.
Late Filing Penalty Calculation
$10,000 x 5% = $500
Now you’ll owe $10,500 with $500 being added each month until the tax return gets filed.
*Thank goodness there IS an option to extend the filing deadline.
When an extension is filed for your return, the filing deadline gets pushed back 6 months with no filing penalty accruing in that time.
Because the filing penalty fee is so much more and it’s so easy to file an extension, if you think you are going to be late filing, make sure to file for an extension. The late payment penalties are manageable if you are late paying.
What if the IRS Owes You?
No penalty of either kind will be assessed if you don’t owe anything or are owed money by the IRS.
However, that does not mean you don’t need to file at all. Even if no fees are going to be assessed, you still missed the tax deadline for filing your tax return. The IRS has the authority to put you in jail for not filing your taxes even if you don’t owe any payments. Just get it done and file an extension if necessary.
Abatement letter requests are an option to try and get the penalties forgiven or lessened is you find yourself in that situation, but for them to be effective – use a professional.
Talk to your accountant if you have any questions or uncertainties at all.
For your future planning, be sure to get our list of the federal income tax deadlines for 2022.
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