What Is An Income Tax Penalty And How Can I Pay It?

What Is An Income Tax Penalty And How Can I Pay It?

When you file your taxes by the deadline, you probably expect them to be finished and over with. But what you might not know is that there could be a few penalties hiding in your tax return. Taxes can feel confusing enough without worrying about hidden fees, but luckily it is fairly easy to understand what an income tax penalty is and how you can pay it as soon as possible. An income tax penalty is essentially a fee that the IRS charges for failing to meet their requirements. In some circumstances, failing to meet these requirements could result in even more penalties, such as an underpayment of taxes penalty, failure to report penalty or failure to pay penalty. All of these things are standard when dealing with taxes and fortunately there are ways to reduce or eliminate each one.

What Is An Income Tax Penalty?

An income tax penalty is a fee the IRS charges for failing to meet their requirements. Typically, you will see an income tax penalty when someone fails to file a tax return or fails to pay taxes due. Sometimes, failing to meet deadlines could also result in an underpayment of taxes penalty. Overall, tax penalties can be a real headache, but luckily there are ways to reduce or even eliminate them.

Failing to File a Tax Return

If you fail to file a tax return, you will almost certainly be hit with a failure to file tax penalty. The amount of this penalty will be determined by a few things, such as how long you went without filing and how many other taxes you owe. The longer you go without filing, the higher the penalty will be. Similarly, if you owe taxes, the IRS will tack on a failure to file tax penalty on top of what you already owe. Typically, a failure to file tax penalty will cost you 5% of the taxes you owe for every month that you go without filing. This could be thousands of dollars, so it is important to file as soon as possible. Fortunately, if you have failed to file for the last three years, you can request an extension on filing your taxes. This will give you an additional six months to file your taxes without incurring a failure to file tax penalty.

Failing to Pay Taxes Due

If you fail to pay taxes due, the IRS will hit you with a failure to pay penalty. Unfortunately, the penalty for failing to pay taxes due is a lot more serious than a failure to file penalty. This penalty can be up to 25% of the taxes you owe, so it is important to pay what you owe as soon as possible. Fortunately, you can avoid this penalty by setting up an installment plan with the IRS. This allows you to pay your taxes in smaller, more manageable chunks. Even if you don’t have the money to pay your taxes right now, you can still set up an installment plan to pay what you owe. Unfortunately, the IRS has the right to reject your installment plan if you have a history of not paying taxes.

Underpayment of Tax Penalties

If you underpay taxes, you will also be hit with a penalty. The amount of this penalty will vary depending on how much you underpaid your taxes by. Typically, if you underpay your taxes by less than $1,000, you will be charged 10% of the amount that you underpaid. For underpayments between $1,000 and $2,000, you will be charged 15% of the amount underpaid. If you underpay $2,000 or more, you will be charged a whopping 25% of the amount that you underpay. Thankfully, this penalty for underpaying taxes can be reduced or even eliminated entirely if you set up an installment plan with the IRS. Unfortunately, if you have a history of not paying taxes, the IRS will not allow you to set up an installment plan.

Conclusion

An income tax penalty is a fee the IRS charges for failing to meet their requirements. Typically, you will see an income tax penalty when someone fails to file a tax return or fails to pay taxes due. Sometimes, failing to meet deadlines could also result in an underpayment of taxes penalty. Overall, tax penalties can be a real headache, but luckily there are ways to reduce or even eliminate them.

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