Tax Penalties for Nonpayment of Taxes
Tax penalties for nonpayment of taxes vary by whether you filed your tax return on time and how late your payments are.
Tax Return Filed on Time
If you filed you tax return by the deadline that applies to you but didn’t pay the full amount of tax due by that date, the tax penalty is generally one-half of one percent of the tax due for each month it remains unpaid until it is paid in full or the maximum 25% tax penalty is reached.
If you don’t pay the tax due within 10 days of an IRS notice of intent to levy, the rate increases to one percent.
Tax Return Filed Late or Not At All
The tax penalties for filing a late return or for not filing at all are much worse than those for timely filers. That one-half of one percent penalty jumps to five percent for up to five months (when the 25% maximum is reached).
If your return is more than 60 days past due, the minimum tax penalty on the amount due is $100 or 100% of the tax owed, whichever is less.
If your failure to file is a result of fraud, the penalty is 15% of the tax due for each month, and the maximum penalty is up to 75% of the tax owed.
If you know you cannot pay the full amount of taxes due on time, you should still file your return on time and you might consider trying to negotiate an installment agreement with the IRS, i.e., setting up a timetable for you to pay off the debt in full. The advantage to this is that the one-half of one percent rate drops down to one-quarter of one percent.
Frivolous Tax Returns, Fraud, and Other Tax Penalty Issues
If the IRS decides that you have filed a frivolous return (either the information is clearly incorrect or there is not enough information provided), you may be fined $5,000. If you have underpayed on your taxes because of fraud, you may be charged 75% of the underpayment, and also interest.
There are also other tax penalty issues that may apply to you such as combined penalties in the case that you both fail to file and fail to pay and tax penalties for mistakes made because of negligence or substantial understating of tax due.
Be aware that you may also be subject to criminal penalties as well, which can even include imprisonment — remember famous gangster Al Capone was in prison not for murder or money laundering, but for tax evasion.
As always, consult an experienced tax attorney or other professional for advice on your specific situation.