Fees and penalties can eat up your savings, so knowing and using an IRS penalty calculator can save you time, effort, and money.
In this article:
- What Are the IRS Late Fees?
- How Are IRS Late Fees Calculated?
- How Can I Use an IRS Penalty and Interest Calculator Correctly?
- What Do I Do After Calculating My Late Fees?
- When Do You Use an IRS Payment Plan Form?
- Where Can I Avail of an IRS Installment Plan?
Important Things to Know About Late Fees and an IRS Penalty Calculator
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What Are the IRS Late Fees?
There are two main IRS late fees for those who file and pay taxes late. These two are the “failure to file” fee and the “failure to pay” fee.
The late taxpayer only gets the failure to file penalty if they filed for taxes a day after the tax reporting deadline. The deadline for each year is April 15, unless the 15th falls on a holiday or weekend, in which case the next business day is the tax reporting deadline.
On the other hand, the failure to pay penalty only applies if the taxpayer fails to pay the taxes within the deadline. Like the failure to file penalty, the deadline is April 15, or the next business day if the 15th falls on a holiday or weekend.
It is possible, and common, for an investor to get penalized with both penalties by the IRS.
Of course, late fees are not the only problems a taxpayer faces when they file late. The IRS can sanction interest on top of said penalties and can levy properties and assets as collateral.
The direct financial costs are not the only thing late taxpayers should worry about. They are also subject to indirect financial costs, like hiring tax professionals and receiving a lower credit standing.
Also, please note that the IRS also levies interest on the unpaid taxes in addition to late fees. Currently, the interest rate is at 3% plus the federal short-term rate, which changes periodically.
How Are IRS Late Fees Calculated?
The IRS regulates the minimum amount of fees, the calculations of penalties and interests, as well as the maximum cap.
The current IRS late fee schedule is from IRS Tax Tip 2017-51, which the IRS published on April 20, 2017.
For the minimum penalty fees, a late taxpayer either pays $205 or 100% of the total unpaid taxes, whichever is greater. This minimum amount is present when the late taxpayer filed more than 60 days after the due date.
In the case where the late investor incurs both the failure to file and failure to pay penalties, the minimum is either $410 or 200% of unpaid taxes, whichever is greater.
If the taxpayer files or pays the unpaid taxes after 60 days, the IRS uses another calculation unless the minimum amount ($205 or 100% of unpaid taxes) applies.
The two late fees have different calculations. Using an IRS late payment penalty calculator, we are able to come up with a pretty close estimate.
For every month of unpaid taxes, the late taxpayer will pay 5% of the unpaid taxes as a penalty fee for failing to file taxes. The IRS caps the failure to file penalty at 25%.
On the other hand, the failure to pay penalty is .5% of unpaid taxes. The cap is also 25%. However, if both penalties are present, the IRS will cap the penalties for the fees at 5%.
The maximum limit is 50% for both penalties. However, if the IRS finds that the tax report has fraud or criminal negligence, the limit increases to 75%.
How Can I Use an IRS Penalty and Interest Calculator Correctly?
If you want an easier way to calculate your total tax payments with fees, you may want to use the IRS Calculator. Just fill in the data required, and you should have an accurate amount.
However, the IRS can change percentages and caps. You may want to double-check as online calculators may not have the right minimum amount, interest rates, and percentages.
Also, the monthly fees apply per calendar month, not on a per 30-day cycle. This means that if you pay on May 3 and the deadline was April 15, you pay 10% as two months have passed by.
As of December 2018, the maximum monthly fee for both failure to file and failure to pay fees are at 5%. The IRS waives the .5% if both fees are present.
You multiply your unpaid taxes by 5%, which is .05 and add it to your unpaid taxes to get the total amount to pay in a month.
If you filed taxes on time, then you only have to worry about the .5%, which is .005, failure to pay penalty.
Do note that this does not take into consideration the interest rate that the IRS may levy. You can call the IRS at 1-800-829-1040 if you want a more specific and detailed calculation.
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What Do I Do After Calculating My Late Fees?
When you owe back taxes, you will receive a letter 2566 from the IRS. Together with notice is a tax form the IRS filled out.
Usually, the tax form copies most of the previous information without deductibles and other benefits. The completed tax form can put the taxpayer in a higher tax bracket which can result in a larger amount of unpaid taxes and higher penalties.
A late taxpayer can ask for a payment plan if he or she is experiencing financial difficulties. The IRS can even give the late taxpayer a form 53, wherein the IRS categorizes the tax as “currently not collectible” for the time being to help the taxpayer.
If you are planning to pay the IRS, a faster method of sending the payment is through the IRS Direct Pay. Paying taxes electronically is a lot easier and faster compared to mailing a check, which can take about 30 to 60 days.
As late taxpayers can see, the failure to file fee is ten times larger than the failure to pay fee. It is better to file your taxes first and then pay later.
Late taxpayers can ask for an extension from the IRS to save on fees. However, if the taxpayer filed taxes late due to reasonable circumstances, the IRS can waive the fees.
When Do You Use an IRS Payment Plan Form?
If the late taxpayer opts to go with a payment plan, the taxpayer fills out the IRS form 9465. There are four payment plans available.
The IRS automatically places late taxpayers with less than $10,000 unpaid taxes in guaranteed installment agreements. In this plan, the taxpayer must pay the amount within 36 months.
For taxpayers with less than $50,000 unpaid taxes, the IRS can offer Streamlined Installment Agreements. The total amount owed will be equally distributed and paid over a 72-month period along with any additional fees.
For people who cannot afford either of the two, the IRS offers Partial Payment Installment Agreements. The IRS will work with the taxpayer to formulate a payment plan that will help both parties settle the unpaid amount with minimal trouble.
For taxpayers who have more than $50,000 in unpaid taxes, the IRS can give non-streamlined installment plans. The IRS makes a personal payment plan for the taxpayers that usually last a period of 5 years.
Where Can I Avail of an IRS Installment Plan?
Both individual and business taxpayers can apply for an IRS Payment Plans Agreement online. However, you have to meet certain requirements to be able to do so.
If you are ineligible to apply online, you can still take advantage of the installment plans by completing and submitting Form 9465 along with several other documents. You may also get in touch with them through 800-829-1040 or the phone number on your notice.
Don’t forget to download, save, or share this handy infographic for reference:
Looking for an easier and faster way to compute your taxes and charges? Watch the video below and find out how to use the IRS Penalty Calculator!
An IRS penalty calculator is only a tool, not a problem solver. Calculating your late fees is straightforward, but making a budget and preventing future obstacles take more time and effort. The best way to prevent IRS late fees is to stay on top of filing taxes and managing your finances.
How early do you work on your tax filing? Have you ever been late in filing and paying your taxes? Let us discuss in the comments section below.
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