IRS Penalties For Failure To Pay Taxes

Feb 03, 2024 By Triston Martin

The IRS isn't a slouch in ensuring that your taxes are paid in one manner or another. The first thing to remember is that the IRS will charge interest on any tax balance. The interest rate applicable to tax balance that is not paid for the calendar quarter that began on October 1st, 2022, was 6% for the year and compounded daily. To top off this interest rate, The IRS may impose two distinct penalties:

  • Tax penalties for late filing if you fail to submit your taxes before the deadline
  • A late-payment penalty when you don't pay your taxes on time

The penalty for late filing begins at 5 percent of your unpaid tax balance each month and up to 25% of your tax bill that is not paid. If you delay filing for longer than 60 days from the due date for filing the tax return, you'll be subject to the minimum penalty of $435 or 100 percent of the required tax or the lesser amount.

The penalty for late payment is lower than when you file late. The penalty for late filing is 0.5 percent per month, up to 25 percent of your tax bill that is not paid. If you delay and you receive a Notice of Intent to Levy that is sent to you, which means the IRS is about to take over assets like your earnings or bank account -- you'll have the option of paying in 10 days your tax bill before the penalty increases to 1 percent per month. In contrast, If you file in time and have a payment plan established before April 15th, the penalty will be reduced by half to 0.25 percent per month.

IRS Installment Agreements

The IRS allows you to establish payment plans; based on the amount you owe; you might be able to set it up on the internet (in other instances, you might need to contact assistance from the IRS). There are two kinds of payment plans.

Short-Term Payment Plan

Select the short-term payment plan if you believe you'll be able to pay the rest of the amount within about 180 days. There's no cost, and you can make payments according to your ability.

Long-Term Payment Plans

Consider a long-term installment plan if you are concerned that it will take more than 3 months to repay the amount you are owed. If you sign up for this plan, you'll be required to pay your bills monthly, and you can create an autopay account when you select. Automated payments are highly recommended to ensure you won't forget an installment.

There's a cost to establish an installment plan that is long-term in nature which ranges from $31 up to $225. The cost is lower when you apply to the plan online and pay your bills automatically. You could be eligible for a lower or waived setup cost if you have a modest income. The amount of time you'll have to pay taxes for a long-term plan is contingent on the amount you have to pay.

Making an Offer in Compromise

In certain situations, there are times when you won't be able to pay off your tax debt, even with a long-term installment plan. If this is the case, you may be able to propose a payment to settle your tax bill with the IRS by using a formal process that it has established, known as an "offer for compromise." The IRS has even provided the option of pre-qualification, so you can check whether this is an alternative for you.

Paying Partial Taxes

If you don't have an enormous amount and require a short period of time for payment, like until the next payday, it's best to pay whatever amount you can make today. It's referred to as a part payment and is an honest signal to your IRS to show that you're delaying the tax. It's still possible to accrue penalties and interest. They shouldn't be as significant if you need a tiny period to pay.

Borrowing Money To Pay Taxes

Saying your tax bill through the IRS is typically the best choice, but it's not always. If you've got lower-interest forms of debt and can pay it off, it might be better to borrow money to pay the tax bill in complete. Because the IRS penalty interest rate is high, and the penalty is 0.5 percent or one percent monthly, the cost of not paying could increase quickly.

If you've got a good credit score, you could obtain an account with a credit card or personal loan with lower rates. Another option is an intro-rate 0% credit card; however, only if you're certain you'll be capable of paying it off before interest accrues.

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