Avoid Penalty and Interest Fees on Your Tax Debt


Penalty and Interest: Learn About IRS Fees

Penalty and Interest Fees
Penalty and interest charges can bloat a tax debt beyond control, making your payments much higher than you can afford monthly. There are many different penalties that a taxpayer can be charged with, but for most taxpayers, the most common penalty and interest charges include:


  • Failure to File
  • Failure to Pay
  • Underpayment of Estimated Tax
  • Accuracy-Related
  • Tax Fraud

These penalty and interest fees are used to deter taxpayers from late filing and not paying their tax bill. Below, we will discuss in detail each penalty and interest charge and how taxpayers can avoid these fees in order to quickly and affordably pay down their back tax debt.

Failure to File Penalty

If you are late filing your taxes and did not file for an extension, you will be subject to penalty and interest fees if you have a tax liability. The penalty and interest charge is five percent for each month your return is late, up to a maximum of 25 percent. A minimum penalty and interest charge of $135 or 100% of the unpaid tax bill (whichever is lower) is added to your tax liability for tax returns over 60 days late.

Failure to Pay Penalty

If you filed your income taxes on time but failed to pay 100% of the taxes owed, two charges are applied. The first is an annual percent interest charge, which is compounded throughout the year for as long as the tax liability stays. The interest rate is currently four percent. The Failure to Pay Penalty 0.5 percent monthly and is capped at 25 percent of the entire unpaid tax. Keep in mind that even with an installment agreement in place, these penalty and interest charges will still mount.

Underpayment of Estimated Tax Penalty

If you are required to make quarterly estimated tax payments, it is important to be as accurate as possible. The penalty and interest fee for underpayment of tax is computed on the amount that was supposed to be paid. This penalty is computed like interest, which is four percent.

Accuracy Related Penalty

If the IRS corrects a mistake on your tax return that results in a substantial increase in tax due, a penalty and interest charge of 20-40 percent may be added. The total penalty and fee charges added will depend on the circumstances of the return and where the inaccuracy occurred within the return.

Tax Fraud

If the IRS discovers a taxpayer intentionally tried to defraud the federal government on their income taxes, this not only receives numerous penalty and interest charges but also criminal implications. Tax fraud may include tax protesters or tax resisters, both of whom believe it is their right to abstain from paying income taxes for specific reasons.

Abatement of Penalty and Interest Fees

If a taxpayer can show reasonable cause for failing to file or failing to pay taxes owed, the IRS has a program that will eliminate the penalty and interest charges. Be aware, though, that many penalty and interest charges cannot be removed. You should speak with a tax professional today about the kinds of penalty and interest fees that can be abated.

The longer you wait to resolve your tax debt, the more penalty and interest charges are applied to your back tax debt, making it even harder to pay down. Call now or fill out the form below for a free consultation about the penalty and interest fees on your tax debt. We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.


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