Under what circumstance will the IRS charge you a late-payment penalty for taxes?

Question

IRS Topic 301 states

You will owe interest on any past-due tax and you may be subject to a late-payment penalty if the payment of tax is not made by the original due date of your return.

The wording of may be subject to had me wondering, under what circumstances does the IRS choose to charge or not charge the late-payment penalty?

For the purposes of the question let's assume there are no estimated tax payments due.

Answer 1

The IRS provides a little more information on the subject on this FAQ: Will I be charged interest and penalties for filing and paying my taxes late?:

If you did not pay your tax on time, you will generally have to pay a late-payment penalty, which is also called a failure to pay penalty.

• You will not have to pay the penalty if you can show reasonable cause for the failure to pay on time.

Some guidance on what constitutes "reasonable cause" is found on the IRS page Penalty Relief Due to Reasonable Cause:

The IRS will consider any sound reason for failing to file a tax return, make a deposit, or pay tax when due. Sound reasons, if established, include:

• Fire, casualty, natural disaster or other disturbances
• Inability to obtain records
• Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
• Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so

Note: A lack of funds, in and of itself, is not reasonable cause for failure to file or pay on time. However, the reasons for the lack of funds may meet reasonable cause criteria for the failure-to-pay penalty.

In this article from U.S. News and World Report, it is suggested that the IRS will generally waive the penalty one time, if you have a clean tax history and ask for the penalty to be waived. It is definitely worth asking them to waive the penalty.

Answer 2

I just got hit with the late payment penalty due to a bug in the H&R Block tax program. The underpayment was only $2 and the penalty was a whopping 1 cent.

The letter that informed me of the error also said that they did not consider the $2.01 worth collecting, the amount owed had been zeroed.

Answer 3

In practice the IRS seems to apply the late payment penalty when they issue a written paper notice. Those notices typically have a pay-by date where no additional penalty applies. The IRS will often waive penalties, but not interest or tax due, if the taxpayer presses the issue.

Answer 4

Assuming US/IRS:

If you filed on time and paid what you believed was the correct amount, they might be kind and let it go. But don't assume they will.

If you can't file on time, you are supposed to file estimated taxes before the deadline, and to make that payment large enough to cover what you are likely to owe them. If there is excess, you get it back when you file the actual forms. If there is a shortfall, you may be charged fees, essentially interest on the money you still owe them calculated from the submission due date.

If you fail to file anything before the due date, then the fees/interest surcharge is calculated on the entire amount still due; effectively the same as if you had filled an estimated return erroneously claiming you owed nothing.

Note that since the penalty scales with the amount still due, large errors do cost you more than small ones.

And before anyone asks: no, the IRS doesn't pay interest if you submit the forms early and they owe you money. I've sometimes wondered whether they're missing a bet there, and if it would be worth rewarding people to file earlier in order to spread out the work a bit better, but until someone sells them on that idea...

Answer 5

Years ago I mailed my personal tax return one day after the due date, and my check was deposited as normal, and I never heard anything about it.

As an employer, I once sent in my employee's withheld federal taxes one day after the due date, and I later received a letter stating my penalty for being late worked out to be around $600. The letter stated that since this was my first time being late they would waive the fee.

In both cases, they could have charged me a late fee if they wanted to.