In most years, April 15 is the deadline for the majority of Americans to both file their tax return and pay any taxes that are due on that return. If you don’t file on time, you potentially face one set of penalties. If you don’t pay by this date, there’s another set of penalties that applies.
Here’s the good news for individuals that are unable to pay by the normal due date: The late payment penalty isn’t nearly as stiff as the late filing penalty.
The reason for this is because the IRS is far more interested in knowing how much you owe rather than having you pay it on time. They rely heavily on people filing their tax returns in order to make the proper tax assessment (never let the IRS do your tax return for you). Knowing how much you owe them starts a well defined process, but when the IRS doesn’t know how much you owe, they can get pretty grumpy about it.
Of course, the more you pay with your tax return or extension, the lower your penalty and interest charges are going to be in the long run. This is because all of your penalties and interest are a percentage of the unpaid balance due after April 15th.
The penalty for not filing a tax return is typically 5% per month or part of a month. One day is considered “part of a month”. This penalty caps out at 25% of the unpaid balance. Do note that if you properly file an extension, and pay the balance with the extension, then there is no penalty. The extension form essentially gives the IRS the same bottom line “amount due” number that they are looking for, just without the math showing how you came up with it. With your extension, you must pay at least 90% of the balance due on the final return in order to avoid penalties.
As already mentioned, the penalty for not paying is far less than the penalty for not filing. This amount is one half of one percent per month (or part of a month).
If you are subject to both the non-filing and non-payment penalty in the same month, the combination of the two penalties together is capped at 5%. If you file your return more than 60 days after the April 15th deadline (or after the extension deadline), then the minimum … Continue reading