How Does The IRS Calculate Penalties?
First, there are 2 types of penalties -Failure to File and Failure to Pay. These are two separate penalties the IRS can charge you. The law provides that the IRS can assess a penalty on either or both instances; should they occur. Let's go over the different between these two penalties...
Failure to File occurs if you do not file by the tax deadline (obviously, right?). This penalty is generally more than the failure-to-pay penalty.
- The Failure to File penalty is generally 5% of the unpaid taxes for each month or part of the month it is late; up to 25% of your unpaid tax.
- If the return is more than 60 days late, the minimum penalty is $135 or 100% of the unpaid tax, whichever is smaller.
Failure to Pay occurs if you do not pay by the due date. Filing a tax extension only extends the amount of time to file, NOT to pay any tax that is due.
- Generally there is a penalty of 1/2 to 1% of your unpaid taxes for each month or part of the month after the due date that your taxes are not paid; up to 25% of unpaid taxes.
- If you filed a tax extension and paid at least 90% of your tax due by the original due date, and pay the remaining balance by the extended due date, you will not incur a Failure to Pay penalty.
NOTE: If there is no tax balance due (or you qualify for a refund) there will be no penalty for late filing. for individuals who live and work out of the country, a 2 month extension is received automatically without having to file Form 4868 - however, a return must be file by October 15th at the latest.
If both penalties apply in any month, the 5% Failure to File penalty is reduced by the Failure to Pay penalty; unless your return is more than 60 days late. The minimum penalty will be $135 or 100% of the unpaid tax, whichever is smaller. If you can show reasonable cause for filing or paying late, the penalties may be waived.
What Is Considered Reasonable Cause?
The IRS does also waive penalties for those individuals and businesses that had reasonable cause to not file or pay on time. This is more a subjective reason to be reserved for the most extreme circumstances, and to be determined by the IRS.
You can easily avoid these penalties by filing on time, or by e-filing IRS Form 4868 with ExpressExtension to extend your deadline 6 months. If you have any questions about e-filing a Personal Tax Extension, contact the ExpressExtension Support Team via phone: 803-514-5155 or email: firstname.lastname@example.org.