The law imposes penalties to ensure that all taxpayers pay their taxes. When you fail to timely file a required tax return, make timely tax payment or deposits, or deliberately neglect to pay your taxes, certain financial penalties may be imposed against you. If you underpay your tax due to negligence or fraud, you may be subject to additional penalties. In certain cases, you may be subject to criminal prosecution.
This following is an overview of the most common types of penalties imposed. This information is given to you to help reduce the likelihood of your incurring such liabilities.
Failure to File Penalty
Under present law, if you fail to timely file your tax return you may have to pay a penalty equal to 5% of the tax not paid by the due date for each month or part of a month that the return is late. This penalty cannot be more than 25% of the tax.
If you pay your taxes by electronic fund transfer (see TTB and Pay.gov Customer Support for more information), you are still responsible for the timely filing of your tax return.
Failure to Pay Penalty
If you do not timely pay your taxes, you may have to pay a penalty of 1/2 of 1% of your unpaid taxes for each month or part of a month after the due date that the tax is not paid. This penalty cannot be more than 25% of your unpaid tax. If a penalty for failure to file and a penalty for failure to pay both apply for the same month, the amount of the penalty for failure to file for that month is reduced by the amount of the penalty for failure to pay tax shown on a return.
Failure to Deposit Penalty
Regulations require certain taxes be paid using deposits or electronic fund transfer. The failure to deposit penalty is charged for failure to deposit correctly. Deposits must be made timely, and in the correct amount, and in the correct manner. Failure to comply may invoke the failure to deposit penalty. Deposits are timely if made on or before the deposit due date. The penalty rate ranges from 2% to 15% of the underpayment depending on the number of days a deposit is late.
Interest, compounded daily, is charged on any unpaid tax or penalty as prescribed by law. For more information on determining the rate of interest, as well as a table of interest rates, please see the most recent release about interest rates from the Internal Revenue Service (see Revenue Ruling 2008-54).