Tax Issues: How the IRS Calculates Penalties for Late or Underpaid Taxes

Annual payment of taxes can be a stressful and expensive ordeal that many dread. The expense and headache of filing your taxes can be greatly increased if you are unfortunate enough to have penalties assessed against you. If you are late filing your taxes or have underpaid the amount you owe, the IRS will charge you penalties for not fulfilling your tax requirements. These fees are calculated based on a number of factors and can only be avoided in special circumstances.
Penalties for late taxes
If you have not paid your annual taxes by April 15 each calendar year, your taxes are considered late and the IRS can begin assessing penalties against you. The IRS will charge a monthly fee of 0.5% of the total amount of taxes due for each month that your taxes are late, beginning on April 16. By law the fee can reach up to 25% of your total taxes due, but the total amount of fees assessed against you cannot exceed 5% in any month. The late payment fees can be avoided if:

  • Your payment was late because of a reasonable cause in the form of an extraordinary event
  • You filed an extension and paid at least 90% of the total taxes due for the year

Penalties for underpaid taxes
If you have underpaid your taxes through insufficient withholdings or quarterly payments, you may also be responsible for the payment of estimated taxes. You can calculate the amount of estimated taxes you owe by using Form 1040-ES. The penalty for underpaid taxes can be avoided if one of the following circumstances applies:

  • Your payment was insufficient because of a reasonable cause such as a disaster or other unusual event that was outside of your control
  • You are over the age of 62 and have retired or became disabled in the current or prior tax year and you had reasonable cause for non-payment
  • You are part of a group that is subject to special rules, i.e., farmers, fishermen, household employers, or higher income taxpayers
  • After deducting your estimated taxes and withholding amounts, you owe less than $1,000
  • You have paid the lesser amount of either 90% of the current year’s taxes on time or the full amount of taxes owed for the prior tax year

Help for tax penalties
The laws regarding tax penalties are complicated and can be overwhelming. If you are facing tax-related penalties this year, contact our competent tax law professionals at Weisberg Kainen Mark today for a consultation.

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Weisberg Kainen Mark, PL

As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.

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