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Failure to Pay Penalty- What is it and how Can I Reduce It?

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Failure to Pay Penalty- What is it and how Can I Reduce It?

Failure to Pay Penalty- What is it and how Can I Reduce It?

 

Of all the penalties imposed by the IRS, the failure to pay is the most common.  It is imposed against taxpayers who have not paid or have underpaid their taxes.  This penalty is assessed if an amount is due after the original April 15th filing date, even if you file an extension.  Any outstanding balance is always due on April 15th of each year.  The IRS will calculate the penalty from April 15th for the year the return was due.

How is the Penalty Calculated?

The failure to pay penalty is .5% per month on the outstanding balance.  The maximum amount that this penalty can reach is 25%. If you have already reached the maximum amount of the failure to file penalty, then the maximum failure-to-pay penalty will be reduced to 22.5%.

If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.

What Will Increase the Penalty?

If the balance continues to go unpaid and the IRS issues an intent to levy notice, the failure-to-pay penalty will jump from .5% to 1% per month on the unpaid tax balance.

What Can Be Done To Decrease the Penalty?

If the taxpayer enters into an Installment Agreement, the IRS will reduce the failure to pay penalty to .25% per month.  The maximum cumulative penalty for this is 25%.  By entering into an installment agreement, you are making a commitment to pay your outstanding balance in monthly increments.

Is There a Chance the Penalty Could Be Removed?

The IRS understands that certain situations make it difficult or even impossible for people to fully comply with IRS rules and regulations, and they do not intend to punish those people. The failure to pay penalty can be removed if a “reasonable cause” is provided explaining the reason for the non-compliance.

If you have a ‘reasonable cause” for not paying your taxes on time, you are most likely eligible for penalty abatement. The IRS considers each individual on a case-by-case basis and is not known to be unnecessarily strict about removing penalties; in fact, the IRS removes approximately 30% of all penalties issued.

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