Tax Relief Solutions by Randy's Tax Service
IRS Penalties for Individuals
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When does IRS charge penalties?
When taxpayer’s are unable to pay their IRS debt in full, IRS will charge some penalties on a monthly basis, until the tax owed is paid in full.
IRC §6651(a)(1) -When taxpayers do not file their tax return by the return due date, or extended due date if an extension to file was filed. It is important to file your return even if you are unable to pay the tax owed.
a. Penalties for failure to file,
i. 5% of unpaid tax charged per month or part of a month the return is late, up to 5 months. Applies for a full month, even if the return is filed less than 30 days late.
ii. Reduced by the “failure to pay” penalty amount for any month where both penalties apply.
iii. Income tax returns are subject to a minimum late filing penalty when filed more than 60 days after the return due date, including extensions. The minimum penalty is the LESSOR of two amounts – 100% of the tax required on the return that was not paid on time, or a specific dollar amount that is adjusted annually for inflation.
The specific dollar amounts are:
1. $210 for returns due after 1/1/2018
2. $205 for returns due between 1-1-2016 and 12/31/2017
3. $135 for returns due between 1/1/2009 and 12/31/2015
4. $100 for returns due before 1/1/2009
IRC §6651(a)(2) – When taxpayers do not pay the taxes reported on their return in full by the due date. An extension to file does not extend the time to pay.
a. Penalties for failure to pay;
i. 0.5% monthly of tax not paid by due date of the return.
ii. 0.25% during approved installment agreement (if return was filed on time).
iii. 1% if tax is not paid within 10 days of a notice of intent to levy.
iv. Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax if fully paid or until 25% is reached.
v. Full monthly charge applies even if the tax is paid before the month ends.
IRC §6651(a)(3) and not paid in full with 21 days of the date of notice and demand, 10 business days if the amount in the notice and demand equals or exceeds $100,000.
a. Penalties for failure to pay;
i. 0.5% of tax not paid by due date in notice.
1. Generally 21 calendar days from notice date.
2. 10 business days if the balance equals or exceeds $100,000.
ii. 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual).
iii. 1% if tax is not paid within 10 days of notice of intent to levy.
iv. Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid.
v. Full monthly charge applies, even if the tax is paid before the month ends.
IRC §6654 – when taxpayer’s do not pay enough taxes due for the year with their quarterly estimated tax payments, or have enough, when required.
a. Estimated tax payments are generally required, if the taxpayer expects to owe at least $1,000 in tax after subtracting withholding and refundable credits.
b. IRS calculates the penalty separately for each required installment. The number of days late is first determined and then multiplied by the effective interest rate for the installment period.
IRS §6657 – when the taxpayer’s bank does not honor their check or other form of payment
a. Penalties for dishonored payment.
i. For payments of $1,250 or more, the penalty is 2$ of the amount of the payment.
ii. For payments less than $1,250, the penalty is the amount of the payment or $25, whichever is LESS.
The Calculator helps you identify your tax withholding to make sure you have the right amount of tax withheld from your paycheck at work. If you are an employee, the Withholding Calculator helps you determine whether you need to give your employer a new Form W-4, Employee's Withholding Allowance Certificate. You can use your results from the Calculator to help fill out the form and adjust your income tax withholding.