FS 2019-5, April 2019
The Internal Revenue Service reminds taxpayers about the importance of timely filing and paying their taxes, and that there are several options available to help people having trouble paying.
Taxpayers should file on time, even if they can’t pay the full amount due. Then, they should pay the rest as soon as they can. Remember, the sooner paid, the less owed.
- Avoid added interest and penalties.
- Avoid losing future refunds. Part or all of any refund is first used to pay any back taxes owed.
- Safeguard credit. If the IRS files a tax lien against a taxpayer, it could affect credit scores and make it harder to get a loan.
Visit IRS.gov/payments to learn more about payment options.
Here are important facts to know:
- Two penalties may apply. One penalty is for filing late and the other is for paying late. They can add up fast. Interest accrues on top of penalties.
- Late-filing penalty. If taxpayers file their 2018 tax return more than 60 days late, the minimum penalty is usually $210. If the tax owed is less than $210, it’s 100 percent of the unpaid tax. Otherwise, the penalty can be as much as 5 percent of the unpaid tax each month up to a maximum of 25 percent. There’s no penalty for filing late, if the taxpayers is due a refund.
- Late-payment penalty. The penalty is generally one-half-of-one percent—that is, 0.5 percent—of the unpaid tax per month. It can build up to as much as 25 percent of the unpaid tax. The penalty rate is cut in half for taxpayers who have a payment agreement with the IRS. In that case, it’s one-fourth-of-one percent—that is 0.25 percent—per month.
- Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.
- Taxpayers should file on time, or request an extension, even if they can’t pay. Taxpayers should pay as soon as they can. The IRS e-file and Free File programs offer the fastest and easiest way to file. For 2018 returns, e-file and Free File will continue to be available until the fall of 2019. Be sure to keep a copy of tax returns. For those using a software product for the first time, they may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Learn more about how to verify identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
Consider a loan. For those who can’t pay in full, getting a loan or paying by credit card may be less expensive than owing the IRS. The IRS urges taxpayers to weigh their options and determine what is best for their personal financial situation.
- Payment options. Explore payment options at IRS.gov/payments. IRS Direct Pay is a great option for those can pay part or all of what they owe. For individuals, IRS Direct Pay offers a fast and free way to pay directly from a checking or savings account. For those who can’t pay right away, the IRS will work with them to resolve their tax debt. Most people qualify to set up a payment plan using the Online Payment Agreement tool on IRS.gov. Taxpayers owing $50,000 or less can usually set up a short-term payment plan or a monthly payment agreement for up to 72 months.
- Late payment penalty may not apply. For taxpayers who get a tax-filing extension and pay most of what they owe by the original deadline, they probably won’t owe a late-payment penalty. To qualify, request a 2018 extension by the April deadline and pay at least 90 percent of the total tax liability by that date. Then, file the 2018 tax return by Oct. 15, 2019, and pay the rest of what is owed. Interest will still be due on any payment received after the April filing deadline.
- No penalty if reasonable cause. Taxpayers won’t have to pay the late-filing or late-payment penalty if they can show reasonable cause for not filing or paying on time. Alternatively, if they have filed and paid on time for the past few years, they may qualify for the First Time Abatement program. Visit IRS.gov for details.