The IRS declares a deadline for filing your income tax returns. By this due date, each taxpayer who reports a taxable income has to file their taxes and pay them to the Internal Revenue Service. Failure to file or pay the due taxes can result in a penalty, which varies greatly depending on how much you owe, how long you haven’t paid the tax after the deadline, and your previous dues. For 2022, the last day to file your income tax returns was 18th April. However, the government has introduced an extension for those who were unable to pay taxes due to a financial crisis or a personal problem. The last date was July 31st, 2022.
You are allowed to request an extension if you know you won’t be able to pay the income tax on time. If you miss this deadline too, you will be liable for the penalty, which is a small percentage of the amount you failed to pay. You will get a notice from the IRS if you are liable to pay the penalty.
How is it Calculated?
You can calculate the failure to pay the penalty on your own using the IRS penalty calculator. Usually, the IRS sends you a notice that specifies the amount you owe. The IRS calculates the penalty based on when you paid the taxes and how long you have not paid your taxes. This refers to the unpaid tax. It’s calculated by subtracting the amount you have paid through withholdings or estimated tax from the amount you owe. The maximum limit set forth for the penalty is 25% of the taxes you owe.
The IRS also sends a notice if you have not reported the tax you owe. They calculate your taxable income after comparing your return files with the tax forms issued by your employer. The notice will specify the total amount you owe and the due date. Usually, the due date is 21 days after the notice is sent. It is 10 business days for those who owe more than $100,000 in tax. Failure to pay the tax after the notice is received will result in a 0.5% penalty on the due amount for each month you didn’t pay.
Interest Charged
In addition to the penalty, the IRS can charge interest if you fail to pay the tax and the penalty by the due date. When they start charging the interest depends on which type of penalty is applicable. It is best to pay your tax returns in full before the deadline to avoid interest; the longer you delay, the higher the interest will be applicable. Make sure you pay your tax, penalties, and interest within the deadline so that the interest and penalty do not add up.
You can also file a dispute by calling the IRS on the toll-free number (available on the website). Ask them why they should reconsider the penalty and send this letter with the supporting documents.
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