The penalty increases to 1% per month if we send a notice of intent to collect and you do not pay the tax due within 10 days from the date of notification. In many cases, borrowing costs can be lower than the combination of interest and penalties that the IRS must collect under federal law. Normally, the late payment penalty is 0.5% per month, not exceeding 25% of unpaid taxes. The interest rate, adjusted quarterly, is currently 4% per annum, with daily capitalization.
How interest is calculated Of the two charges you may face, interest is the easiest to calculate. The IRS interest rate is determined by the federal short-term rate plus 3%. Since the federal short-term interest rate has been close to 0% for some time, the interest rate charged for late tax payments is 3% at the time of writing (October 2014). When you have an installment agreement, the penalty for non-payment is halved.
The interest rate on the installment payment agreement falls to 0.25%. Interest and penalties for non-payment will continue to accrue until the full balance of outstanding taxes is paid in full. However, the IRS (gov) provides a page on how to contact the IRS, where you will find instructions on where to send specific questions. Interest rates are determined every three months and may vary depending on the type of tax (for example, individual or business tax obligations).
More information on current interest rates and interest information can be found in the IRS, the government. The IRS can reduce penalties for filing and paying late if there is reasonable cause. In general, interest may not decrease and will continue to accrue until all taxes, penalties, and interest applied are paid in full. The law establishes some exceptions to allow the reduction or suspension of interest.
Information about the reduction is also in the IRS, gov. If you receive a bill from the IRS, you are expected to promptly pay any taxes due, including penalties and interest. You can look up the “Notice 746” in the IRS (government), which may be useful to you in explaining the penalties and interest included in your bill. For more information on payment options, including installment and online payment agreements, and to pay your taxes online, visit IRS, gov.
The late filing penalty starts at 5% for each month the tax return is delayed, up to a maximum penalty of 25%. For example, if you were in the hospital for one week before the application deadline, the IRS may show leniency. However, if you decide to pay the fees in your installment agreement with a credit or debit card, the three payment processors approved by the IRS do charge a fee, which usually ranges from 1.87% to 1.98%, to process these types of payments. Alternatively, when a taxpayer has a history of compliance, the IRS can usually provide help under the reduction program for the first time.
For more information on IRS notices and bills, see Publication 594, The IRS Collection Process (PDF). Many installment payment agreements with the IRS require additional fees to establish plans and organize payment methods. In addition, this late payment penalty increases to 1% per month if your taxes remain unpaid 10 days after the IRS issues a notice taxing the property. Now, the late filing fee also peaks at 25% of the outstanding balance, but the late payment rate may continue to rise, to a combined total of 47.5% of the unpaid tax.
If a taxpayer has just filed their return and knows that they will owe a balance, they may be able to set up a payment plan online even before receiving a notification or bill. Many people who can't pay the balance in full right away will sign an installment agreement with the IRS. If the IRS decides that you are eligible for uncollectible status at this time, your salary cannot be garnished or your bank accounts charged. And, since 110 days are more than three months but less than four, they would have to pay four months of late fines, or 2% of the balance (0.5% times four months).
While the IRS treats every late payment on a case-by-case basis, here's how you can get a good idea of what you'll owe in terms of interest and penalties. More information on current interest rates and interest information can be found in the IRS. . .