Don't Mess With Taxes

Photo by Leeloo Thefirst

Tax Day 2023 came and went and you weren't part of the annual tax-filing party.

That means the Internal Revenue Service has been toting up penalty and interest charges you now owe on your unpaid tax.

But you can stop that running number and avoid even larger noncompliance penalties if you do the job by June 14.

Normal tax penalties: Under normal non-filing and non-payment calculations, the IRS assess two penalties. They can add up quickly.

The late-filing penalty is 5 percent of the unpaid tax for each month or part of a month that an annual tax return is late. If the taxpayer tardiness drags on, this failure to file penalty can amount to an eventual maximum of 25 percent of unpaid tax.

There's also a failure to pay penalty that calculated separately when you don't pay a tax bill by the due date. When that's in connection with your annual return filing, the deadline again is the annual Tax Day. The late-payment penalty is 0.5 percent unpaid taxes for each month or part of a month the tax remains unpaid. It also maxes out at 25 percent of your unpaid taxes.

If you miss both the filing of your forms and paying what you owe, both filing and payment failure penalties are applied. But in these cases, the IRS reduces your late filing penalty by the amount of your late payment penalty assessed that month.

That means, for example, instead of a 5 percent failure to file penalty for the month, the IRS applies a 4.5 percent failure to file penalty and a 0.5 percent failure to pay penalty, giving you a combined 5 percent assessment.

Interest also is added. The current rate is 7 percent per year, compounded daily. Adjustments are made quarterly, based on the federal short-term rate. The 7 percent rate will remain in effect at the next change period, which starts July 1.

How the June 14 penalty works: In addition to the regular late filing and payment penalties, there's another assessment when a tax return is more than 60 days late.

In these cases, the minimum penalty is either $435 or 100 percent of the unpaid tax, whichever is less.

So the taxpayer's penalty will equal the tax due if $435 or less is owed. If more than $435 is overdue, then the minimum penalty will be at least $435.

The IRS says delinquent filers who miss the June 14 cutoff normally will face the $435 minimum penalty a minimum penalty.

The IRS also points out that you must meet the June 14 deadline; that is, the IRS must receive your filing and payment by that day.

Usually, the IRS relies on what is known by timely filing, which is that it accepts returns mailed on the due date as being filed by the due date. That's not the case here, so the IRS recommends taxpayers file electronically by June 14.

Paying will stop or reduce the charges: In all cases where a taxpayer owes and has not filed, getting the forms and money to the IRS will stop the added penalty charges.

First, finish that return you neglected back on April 18. As noted, failing to file a return carries a stiffer penalty than failing to pay any tax you owe.

Then pay your tax bill. If you can't pay it all, pay as much as you can.

You also might want to look into ways to pay your tax bill over time. The IRS offers a couple of extended pay options.

Installment agreements for tax bills: An installment agreement, or payment plan, can be applied for online if you owe $50,000 or less in combined tax, penalties, and interest. Typically, with this plan you can make monthly payments for up to 72 months. Get the details at IRS.gov's online payment agreements page.

You also might qualify for a short-term payment plan of up to 180 days to settle in full your tax debt. This payment arrangement is available to taxpayers whose balance is less than $100,000. Once established, you pay directly from a checking or savings account, through the Electronic Federal Tax Payment System (EFTPS), by using a debit or credit card, or by sending the IRS a check or money order made payable to U.S. Treasury.

There's not set-up fee for the 180-day short term payment plan. Other payment plans, however, do charge, with the amounts based on your payment method, as shown in the table below.

Your specific tax situation will determine which payment options are available to you. If you qualify, you or your authorized representative can apply for a plan. Check out the IRS.gov page with more on plan requirements and applying online.

Just do so soon, so that you can meet next week's June 14 deadline and stop your accruing penalty and interest charges.

You also might find these items of interest:

• 6 ways to e-pay your federal tax bill
• 4 moves to make now if you didn't file on Tax Day
• IRS still accepts checks, but has rules about paper payments

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