Failure To File Penalty Explained

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All taxpayers are obligated to comply with tax laws at the local, state, and federal levels, otherwise, they may be subject to tax penalties. Filing your tax return on time is one of these circumstances.


Key Takeaways:

  • Failure to File Penalties are issued when taxpayers do not file their federal income tax return by the due date, which usually falls around April 18.
  • The Failure to File Penalty is 5% of the unpaid taxes for each month that tax returns are late, but cannot exceed 25% of the unpaid tax balance.
  • If you owe a Failure to File Penalty, you can either pay the penalties, request the penalty be removed, or dispute the penalty.
  • If taxpayers are not able to file their taxes on time, they can request an extension of time to file, giving them time to acquire any tax form necessary to complete their tax obligation.

What Is A Failure To File Penalty?

Taxpayers may be issued a Failure to File Penalty if they do not file their federal income tax return by the due date. The consequence of failing to file taxes is a percentage of unpaid taxes, which causes an overall increase in tax liability. 

How Much Is The Failure To File Penalty?

For every full or part of a month in which the tax returns are late, a Failure to File Penalty of 5% of the unpaid taxes will accrue, so long as the penalty does not exceed 25% of the unpaid tax balance. 

Failure to File Penalties and Failure to Pay Penalties applied in the same month reduces the late filing penalty by the amount of the late payment penalty for that month so that the combined penalty for each month the tax return was late is 5% of the unpaid balance.

The Failure to File Penalty maxes out after 5 months of the tax liability being unpaid, as compared to Failure to Pay Penalties that continue to accrue until the tax is paid or the penalties have amounted to the maximum 25% of unpaid taxes. 

The minimum Failure to File Penalty for tax returns over 60 days late is the lesser amount of $435 or 100% of the unpaid taxes.

Can Interest Accrue On Tax Penalties?

Any unpaid tax liability is subject to interest, including tax penalties. For this reason, it is beneficial to resolve the tax problem of having unpaid tax liabilities as soon as possible to avoid the tax balance increasing due to interest.

How Do You Know If You've Received A Failure To File Penalty?

The IRS conducts all of its official communication with taxpayers through the mail, so if you owe the Failure to File Penalty, an IRS Notice letter will be sent to your most recent mailing address listed on file. It is essential that taxpayers carefully read all IRS letters to understand their tax status and learn if there are any actions that must be taken.

What To Do If You Owe A Failure To File Penalty

Pay The Penalty

The first option for resolving a Failure to File Penalty is to submit a payment for what is owed to the IRS. Taxpayers can submit tax payments by using direct deposit from their bank account, using their debit card or credit card, or mailing a check or money order. It is most beneficial to submit a payment for the total tax bill to avoid additional penalties and interest accruing.

Remove The Penalty

Certain individuals may be eligible to find tax penalty relief by having the IRS remove the penalty from their tax account, such as during a situation where the taxpayer can provide evidence that there was a reasonable cause as to why their tax return was not filed on time.

Dispute The Penalty

Taxpayers have the option to dispute a penalty if they disagree with the information outlined in their IRS notice.

Within the IRS letter, there are instructions on how to initiate a dispute, including options to use a toll-free phone number or send a letter through the mail.

How To Avoid A Failure To File Penalty

File And Pay Taxes By The Due Date

Taxpayers can most effectively avoid penalties by filing their tax returns and paying what they owe by the tax deadline.

Apply For A Tax Extension

If taxpayers are unable to prepare and file their taxes by the deadline, applying for an extension of time to file can help them gather their tax documents and explore payment options so they can file by the extension deadline. 

Apply For A Payment Plan

Taxpayers who cannot afford to pay their tax liability or penalties by the deadline can apply for a payment plan with the IRS, known as an installment agreement. An installment plan allows taxpayers to manage their unpaid taxes with lower penalty amounts.

If you have been issued a late filing penalty and need assistance finding a tax resolution, consulting with a tax attorney at an experienced tax relief company can help you save the most money. Schedule a free consultation with Ideal Tax today for tax help and to develop a personalized plan to manage your tax debt.

Author: Luis Ceja - Director of Operations
Author: Luis Ceja - Director of Operations

Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.

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