Are IRS Penalties Chomping Away at Your Wallet?
IRS penalties can quickly make an already stressful tax bill feel overwhelming. From late filing to missed payments, fees stack up fast and leave you feeling like you’re chasing your tail. The good news? You may be able to reduce or remove them!
Most Common IRS Penalties
When it comes to tax debt, penalties can be just as painful as the taxes themselves. The IRS frequently adds extra charges for:
- Failure to File – If you don’t file your return on time, expect penalties that grow larger the longer you wait. You’ll be charged 5% of the tax due each month your return is late, up to a maximum of 25% of your balance due. For returns more than 60 days late, you’ll pay a minimum of $510 or 100% of your underpayment, whichever is less.
- Failure to Pay – Even if you file on time, not paying what you owe triggers monthly penalty fees of 0.5% on your unpaid balance. Ten days after receiving an Intent to Levy notice, the fee jumps to 1% per month.
- Failure to Deposit – Employers who don’t make payroll tax deposits on time can face serious penalties, ranging from 2% to 15% of their unpaid deposit.
You can also get hit with an accuracy-related penalty if you underreport income or claim credits/deductions that you don’t qualify to receive. Each of these penalties can add up quickly (along with the interest fees!), often turning a manageable balance into a financial burden that feels impossible to shake off. The good news is that help may be available.
Is Penalty Relief Available?
Yes! The IRS and many states provide penalty relief (also known as penalty abatement) in certain situations. Depending on your circumstances, you may qualify for:
- Reasonable Cause Relief – If you had a valid reason for falling behind, such as a serious illness or other unavoidable circumstances, you may be eligible for relief. Just be sure you have ample evidence to back up your claim.
- IRS Error – When the IRS makes a mistake in calculating or applying penalties, it may reverse your penalty fees. Unfortunately, this type of penalty relief is rarely successful.
- First-Time Penalty Abatement – This can be used to reduce or waive failure-to-file, failure-to-pay, and failure-to-deposit penalty fees if you’ve been compliant in the past three years and it’s your first time missing a filing or payment deadline. Generally, this is the easiest form of penalty relief to get approved.
Additionally, a statutory exception (penalty relief) may be granted for those affected by natural disasters or taxpayers serving in combat zones. To see if you qualify for penalty abatement or other tax relief programs, request a free consultation or give us a call today. You can also apply on your own by submitting Form 843, Claim for Refund and Request for Abatement.