What You Should Know About IRS Penalties

One of the worst penalties is the failure to file penalty of 5% of the unpaid balance for each month or part of a month that the return is late up to a maximum of 25%.  So you should file a return or an extension even if you can't pay. There is also a .5% penalty per month or part of a month up to a max of 25% of the unpaid balance for failure to pay tax on time. If you don't have a reasonable explanation for not reporting a 1099 amount or a W-2 amount, you are subject to a 20% accuracy related penalty on the underpayment amount. Along with the above penalties, the IRS also charges interest on the unpaid amount from the due date of the return until paid. Currently the interest rate is an annual rate of 4% which can change each quarter. As you can see penalties and interest can add up fast.