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%.
|Large corporate underpayments||6%||7%|
|Corporation overpayment exceeding $10,000||1.5%||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:
|Penalty for paying your taxes late||0.5% of the past-due balance per month or partial month||Maximum Penalty is 25%||Example: If you owe the IRS money for two months and three weeks, you’ll be penalized 1.5% of the outstanding balance.|
|Penalty for failing to file||5% for each month or partial month you file your tax return after the deadline||Maximum Penalty is 25%||Example: If you file your tax return two months and three weeks after the deadline, you’ll be penalized 15% of the outstanding balance.|
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.
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.