August 12, 2014

Nobody likes paying taxes. But most people file their tax returns and pay the taxes they owe before the due date. For people who fail to meet those deadlines, the IRS imposes penalties in addition to the taxes that are owed. Penalties are percentages of the unpaid taxes that are applied to the total, just like interest is applied to the principle of a loan.

The penalties and the interest rates charged for the penalties can vary widely.

Failure to File Penalty

The IRS makes it easy to file your return on time. If you cannot meet the regular filing date of April 15, you can request an automatic six-month extension to October 15. But if you fail to file either a return or a request for an extension, the penalty can be steep. The penalty is 5 percent of the unpaid taxes owed, charged each month, with a maximum penalty of 25 percent of the unpaid taxes due. But if you file your return more than 60 days after the due date, the minimum penalty is $135 or 100 percent of the unpaid tax, whichever is smaller.

Failure to Pay Penalty

Many people fail to file tax returns because they cannot afford to pay the taxes they owe. This is a mistake. The penalty for paying taxes late is much lower than the penalty for filing a late return. The IRS charges .05 percent each month in penalties on unpaid taxes. If you file an extension by the due date and pay at least 90 percent of the taxes you owe with your extension request, the IRS does not impose a late payment penalty.

Combined Penalties

If the IRS slaps you with penalties for failure to file and for late payment, the charges could potentially add up. But the IRS gives you a break by only charging the 5 percent penalty on the portion of unpaid taxes from a tax return filed late. But the penalties for the portion of taxes owed only for a failure to pay will still be imposed separately. (

Make Your Case

If you can show reasonable cause for why you filed a late return or paid your taxes late, the IRS may waive the penalties on your unpaid taxes – but the taxes must still be paid. The IRS has also initiated a special penalty relief program for some taxpayers who file extension requests for their 2012 federal returns. Also for victims of severe storms in the Midwest and the South, and for victims of the Boston bombing attacks. Consult with a tax professional like those from Optima Tax Relief to determine if you can have some or all of the penalties from your unpaid taxes waived.

Additional Tax Topics:

The IRS Criminal Investigation Process
What to do during an IRS Audit