What Types of IRS Penalties Are There?

Thursday, March 1, 2012

The IRS Penalty widely varies depending on the offense. Penalties range from fines to imprisonment for criminal tax evasion.

People who do not file their return and pay it by the due date are likely to have to pay an IRS Penalty. An IRS Penalty may apply if you substantially understate your tax or file an erroneous claim for refund or credit. Avoid providing fraudulent information on your tax return or you may end up with an IRS Penalty. In most instances you will need to pay the tax when the IRS requires you. An IRS Penalty is collected and paid like normal taxes. You will receive a notice describing your IRS Penalty, the applicable code section, and how the IRS Penalty was determined. Estimated Tax-Related Penalties Employers are required by law to withhold taxes from employees’ paychecks. In the event that you have income that is not subject to withholding you can make tax payments during the year. Some instances in which you will need to pays taxes is if you are self-employed, have received interest, rent, gains from the sale of assets, and awards. You may also need to pay estimated tax if the amount being withheld is not enough to cover you tax liabilities. Estimated tax payments will help you to avoid an IRS penalty. They are used to pay income tax and self-employment tax. When you do not pay the required amount of tax, you may have to pay an IRS Penalty. If you do not pay enough by the required date you may be required to pay a penalty even if you are due a tax refund. Penalties for filing or paying taxes late An IRS Penalty is common when you file or pay your taxes past the due date. What happens if you file late?- If you owe money and do not file your return, you will be required to pay a failure-to-file penalty. Normally this penalty is assessed at five percent for each month that a return is overdue. The penalty cannot exceed 25 percent. An IRS Penalty is determined by the amount of unpaid tax on the due date. The minimum IRS penalty is $100. Paying tax late- An IRS Penalty of 0.5 percent applies for each month that your taxes are overdue. This IRS Penalty is not applicable to the six-month filing period if you paid 90 percent of you actually tax liability or more on or before the due date of your return. This penalty increases to one percent for any remaining taxes after the IRS has demanded you pay them or 10 days after notice of intent to levy is issued. IRS Penalties for Inaccuracies Two common IRS penalties are the “substantial understatement” and the “negligence or disregard of the rules or regulations” IRS Penalty. They are calculated using a flat 20 percent penalty which applies to the net amount of understated tax. IRS Resources IRS.gov is the primary resource to aid you with tax questions. Contact the IRS by clicking here. Here is a list of IRS forms and publications for one to meet your individual needs. The Department of Labor can offer answers related to employment taxes. Google is an excellent source for finding any unanswered tax questions that you may have.