The Center For Debt Management
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When Do IRS Penalties
and Interest Apply?

Penalties and interest do not apply in years in which a taxpayer is entitled to a refund. About a third of those who file returns for past years discover they have a refund coming.

Penalties and interest apply to years in which money is owed. The interest charged on late payments changes quarterly. During the last several years the interest rate has ranged from a high of 9% to a low of 4 percent.

Filing Late Penalty

The penalty for filing late is generally 5 percent per month, or part of a month, up to 25% of the amount of the tax shown due on the return.

Paying Late Penalty

The penalty for paying late is 0.5 % per month, up to 25 % of the unpaid amount due.

Waiver of Penalties

The IRS recognizes many people drop out of the system because of personal problems, including serious illness, a death in the family, or loss of financial records in a natural disaster. Depending on the situation, informing the IRS why returns have not been filed could result in a waiver of penalties.

Important Facts:

  • Taxes paid in a timely manner reduces the amount
    of penalties and interest a taxpayer may owe.

  • Interest is calculated on the unpaid balance, penalties,
    and interest that have been charged to the tax account.

  • While making payments on a tax debt through an installment agreement, penalties and interest continue on the unpaid portion of that debt.

  • The interest rate on a bank loan or cash advances on a credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code.

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