NFIB

Late Fees Quickly Mount
03/ 28/ 2002

The IRS charges interest, compounded daily, on any unpaid tax from the due date of the tax return until the date of payment. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.

If you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, up to 25 percent. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause. The combined penalty is 5 percent (4.5 percent late filing, 0.5 percent late payment) for each month, or part of a month, that your return was late, up to 25 percent. The late filing penalty applies to both the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax and any timely payments made with the return.

After five months, if you still have not paid, the 0.5 percent failure-to-pay penalty continues to run, up to 25 percent, until the tax is paid. Thus, the total penalty for failure to file and pay can be 47.5 percent (22.5 percent late filing, 25 percent late payment) of the tax owed. Also, if your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $100 or 100 percent of the tax required to be shown on the return.

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This article originally appeared in the March/April 2001 issue of MyBusiness Magazine, NFIB's member magazine.

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