Continue reading to learn about the late-payment penalty for a missed tax deadline and whether or not you are eligible for penalty relief.
When is the Deadline to File Your Taxes?
The Internal Revenue Service (IRS) extended the 2017 tax return submission deadline to Wednesday April 18, 2018, due to technical difficulties in their systems. The remaining important deadlines: June 15, 2018 for U.S. persons who live outside of the United States and who did not file an extension, and October 15, 2018 for those individuals who did file an extension on time. However, this does not extend the time to pay any necessary tax. Accordingly, taxpayers who have failed to file on-time or failed to file a timely extension are subject to a late-filing penalty imposed by the IRS in addition to any tax and interest owed. The IRS encourages taxpayers to timely file, specifically to avoid the failure-to-file penalty that is imposed on those who fail to file or request an extension to file.
How is the Late-Filing Penalty Calculated?
A late-filing penalty is assessed if you fail to request an extension to file your return or have altogether failed to file your return. The failure-to-file or late-filing penalty referenced above, is only applicable if there is tax owed and thus is calculated on that amount of outstanding tax owed. The penalty is calculated based at a rate of five percent of the tax owed for each month or portion of month that a tax return is late-filed.
How much is the minimum penalty exactly? If a return has been filed in excess of 60 days after the original deadline, which is in April (or October if an extension has been granted), then the minimum penalty incurred will be the lesser amount of US $210 or 100 percent of the overdue tax.
How Can You Avoid the Penalty?
Over 135 million people filed their tax returns on or before the April 18, 2018 deadline so they are not subject to the late filing penalty. The penalty is also not going to be assessed on the 14 million people who requested the six-month extension from the IRS, although they have the capability of being assessed the late-filing penalty if they do not timely file by the October 15, 2018 deadline.
According to the IRS, if you, as a taxpayer, are filing a tax return to claim a refund, you are not at risk of being levied with any penalty. However, bear in mind that, to be eligible to receive a refund, you must be sure to claim it within three years.
Once you file, the late-payment penalty will not continue to accrue. Additionally, people who file and pay on time will completely avoid interest charges and related penalties.
How Much Time Do You Have to Defray the Penalty?
If you have failed to file on time, the IRS will factor in the total interest due as well as the penalty and assess the charges to you once you do file your returns. Under normal circumstances, there is a 21-day-period for you to pay any outstanding amounts once assessed by the IRS.
How Can You View the Amount Owed in Penalties?
To determine how much tax is owed or to make a payment, you can log into your online account on the IRS website. You can also request an online payment agreement to assist with a payment schedule. To access your account, you will be required to authenticate your identity with the IRS via their secure portal to protect against fraud.
Are You Eligible for Penalty Relief?
The IRS has set aside certain penalty relief clauses for those individuals who have an excellent track record of filing their returns and making payments on time. If you are one of these individuals, then, chances are, you will qualify for an abatement of associated penalties. So how exactly does the IRS determine who will be eligible for a tax relief? If you, as a taxpayer, have not been assessed any penalties for the last three years and if you fulfil the other prerequisites laid out by the IRS on their webpage, under First-Time Penalty Abatement, you may be eligible for the relief.
Additionally, the IRS also takes into account other factors when determining whether or not to grant a penalty abatement. If the IRS decides that you could not file or pay on time due to reasonable cause and not due to willful neglect, then you may qualify for relief. There are specific instructions related to requesting penalty relief. Please be sure to carefully read any notice indicating that you have been assessed penalties or speak to a qualified U.S. tax advisor if you believe you have sufficient reason for penalty abatement under IRS programs and guidelines.
What Are the Payment Options Available to You?
There are many taxpayers who do not file their returns because they are not able to pay what is owed in one lump sum. The IRS recognizes these difficulties and accordingly has made certain compromises and alternatives for these taxpayers:
Under this option, you are granted the ability to spread the amounts over a period of time, through a payment plan with the IRS. The installment plan is only available to certain taxpayers. If you owe $50,000 or less in interest, penalties and combined tax, then you may apply for this through the Online Payment Agreement application available on the IRS website. This agreement is also available to taxpayers who have $100,000 or less as a balance in their account, although the length of repayment time is often shorter. These plans are set up quickly and the taxpayer receives instant notification of approval or denial.
Offer in Compromise
The IRS offers certain taxpayers the option of settling their debt at a lesser amount than what was originally owed. This can be done by submitting an Offer in Compromise. Keeping in mind that not everybody qualifies for this particular penalty relief, it is best to check the prerequisites listed on the IRS website and to utilize the Offer in Compromise tool to determine if you may be eligible under this category.
Besides the above, certain deadlines, and interest and penalty exceptions are made for members of the military who serve in combat areas, or people residing in disaster zones. Information related to these specific classes of taxpayers can be found on the IRS website.
It is extremely critical to file your taxes on time and abide by all other requirements that are imposed by the IRS.