Tax Day Approaches: The Cost of Filing Late and Owing the IRS Money

Owe the IRS money? As Tax Day rapidly approaches, it’s been announced that for the second quarter of 2018, taxpayers and corporations will be charged a higher interest rate in addition to the penalties charged for failure-to-file and late payments.

Here’s what you need to know:

Increased Interest Rates

The IRS interest rates are determined quarterly and are based on federal short-term rates, which have risen three times over the past year. Starting April 1, the rate for underpayments and overpayments will be 5% annually, rising from 4 percent. In the case of a corporation, underpayment rates are set to 6%, and overpayments are set to 4%. A corporate overpayment exceeding $10,000 has risen from 1.5% to 2.5%.

These interest rates will compound daily, which means that if you owed the IRS $10,000, you can now expect to pay about $1.37 per day in interest charges, or $500 a year.

The penalty for paying or filing late

Interest is accrued on top of the penalties you face for paying or filing late. Take a look at the penalty rates here:

Remember, the deadline for filing your tax returns is on April 17, 2018, so if you haven’t already filed, you’ll want to do it soon to avoid being penalized. The silver lining is that if both penalties apply, you’ll only pay the higher rate. Also, if you don’t owe the IRS money, you won’t be penalized at all, since the penalties are based on a percentage of the money you owe.