Fees, Interest Charges, and Penalties the IRS Can Hit You With

If you are audited and the IRS determines you underpaid or failed to file at all, the IRS doesn’t just hit you with a bill for that amount. They penalize you, by charging interest for the amount you didn’t pay—starting from the day it was due—and they assess user fees for evaluating your debt and processing your payment. And the IRS first applies any payments to overdue taxes, then to penalties and finally to interest due. In other words, you could have paid off the unpaid taxes, but still, find yourself writing yet more checks to the IRS. Let’s review some of the most common fees.

Unfiled Taxes

The “failure to file” penalty is one of the harshest. The IRS charges five percent penalty on the amount due for every month your return remains unfiled or your debt is outstanding. If the IRS can prove you willfully or fraudulently failed to file, the IRS might assess a civil penalty at 15 percent a month or up to 75 percent of the amount due. In some situations, you could face criminal charges with up to $25,000 fines and a year in prison.

Filed but Unpaid Taxes

The “failure to pay” penalty is less serious but still expensive. The IRS charges 0.5 percent for each month after the due date—up to 25 percent of your overall bill.

If the IRS sends a Notice of Intent to Levy, and you still don’t pay, ten days after the date of the notice, the amount increases to one percent.

However, if you request they allow you to pay your bill in installments, the penalty decreases to 0.25 percent.

Interest Charges

The IRS compounds interest daily, and it begins calculating interest on the date the return should have originally been filed. And it continues to add charges until it receives payment. The IRS posts its current interest rate every three months and bases it on the federal short-term rate plus 3 percent.

Unintentional Errors

Even innocent mistakes can result in severe penalties.

For example, if you enter information on the wrong line and it ends up providing you with a refund, it could be interpreted as tax fraud. And one of the most common errors is forgetting to sign a return, but this could mean that you’ve filed late—which means you’d be liable for penalties and fees.

Given the compounding interest, accumulating fees and more, the takeaway should be this: If you have a tax issue, find a qualified representative who can help you resolve the issue. Otherwise, it can cost you, both in the long and short-term.

If you are dealing with unpaid taxes or penalties, Highland Tax Group may be able to help: Contact us to receive expert advice today.