What are the penalties for filing late or incorrect payments?

April 15th is the deadline for most people to file their individual income tax return and pay any tax owed. During processing, the return is checked for mathematical accuracy, and the tax due is compared to all amounts paid. If there is any money owed, you will be sent a bill.

There are several important things you should know about collection notices and bills. Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined every three months and is the federal short-term rate plus 3 percent. Interest is compounded daily.

If you file on time but don't pay all amounts due on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, up to 25 percent. The one-half of one percent rate increases to one percent if the tax remains unpaid after the IRS issues a notice of intent to levy.

If you owe tax and don't file on time, the combined late-filing (4 1/2%) and late-payment penalty (1/2%) is five percent of the tax owed for each month, or part of a month, that your return is late and the tax is unpaid, up to 25 percent. The late file penalty continues at 1/2% a month up to 25% on unpaid amounts. If your return is over 60 days late, the minimum penalty is the smaller of $100 or 100 percent of the tax owed.

You must file your return and pay your tax by the due date (April 15) to avoid interest and penalty charges. Often the funds necessary to pay your tax can be borrowed at a lower effective rate than the combined IRS interest and penalty rate. 

To ensure your payment on a bill for tax is credited properly, be sure to return the tear-off stub on your bill and use our return envelope when provided. Please make your check or money order payable to the United States Treasury. Enter the primary social security number or employer identification number, the tax year and form number and your telephone number on your check or money order.

The penalties for filing late and paying late may be waived if you have reasonable cause for being late. If you're billed for either penalty and feel you have reasonable cause, send your explanation along with the bill to your service center, or call the IRS at 1-800-829-1040 for assistance. Generally, interest charges may not be waived; they continue to accrue until all assessed tax, penalties, and interest are paid in full.

If you believe there is an error on your notice or bill, write to the IRS office that sent it to you within the time frame given. You should provide photocopies of any records that may help correct the error. Also, you may call 1-800-829-1040 for assistance. If you are correct, we will make the necessary adjustment to your account and send you a corrected notice.

For more information about IRS notices and bills, download Publication 594, Understanding the Collection Process. More information about penalty and interest charges is contained in Publication 17, Your Federal Income Tax. These publications can also be ordered by calling 1-800-829-3676.

(Information Provided by the Internal Revenue Service)