An individual may file a six-month extension to submit a complete and accurate tax return, but it is important to note the IRS will not extend the due date of taxes that are owed. Failure to pay a tax liability on time can result in additional taxes due in the form of penalties, interest and fees. Individuals are still required to pay by the original due date of the return, April 15th.
How does the IRS calculate penalties? Income tax liabilities that are not paid by April 15th will in most cases be assessed a late payment penalty. The penalty is calculated at a rate of 0.5% of the unpaid taxes per month. The maximum penalty allowed to be enforced by the IRS on a monthly basis is $10.00.
If your tax liabilities remain unpaid for more than 10 days, the IRS will issue a “Notice of Intent to Levy”, increasing the penalty to 0.1%. However, if your return is filed on time and an Installment Agreement is set up, the penalty decreases to 0.25%.
In addition, the IRS will charge interest on any outstanding tax balances. The interest is compounded daily and accrues from the due date of the tax return until the day the taxes are paid. The interest rates can vary, they are determined on a quarterly basis. Today, the interest rate matches the Federal short-term rate plus 3%.
Lastly, a late filing penalty can be imposed if you owe tax to the IRS and you do not file a return on time. Unpaid taxes are charged at a fee of 5%, assessed on a monthly basis, with a maximum of up to 5 months. A tax return that is more than 60 days late, the minimum late filing penalty that will be imposed is the lessor of $135 or 100% of the tax due.
It is key to be aware of the charges that can be assessed by the IRS when it pertains to filing extensions and outstanding tax balances. Please call if we can be of assistance.