What is an Income Tax Penalty and How Will it Affect You?
If you work then you have a legal responsibility to pay income taxes on a yearly basis. It is advisable for you to file and pay your taxes when they come due. If you are unable to do this then you will likely be assessed an income tax penalty. You will receive a statement or notice from the IRS informing you of the IRS income tax penalties and interest associated. If you have questions concerning your notice then it would be good for you to seek the services of a qualified tax attorney.
Understanding Income Tax Penalties
The penalty will not only include the current amount owed, it will also include interest applied to the amount as well. If you can’t pay by the due date then expect an income tax penalty to be filed against you. Even if you or your tax attorney has filed for an extension, you will still be penalized with interest charges on your balance. The amount of interest is determined by the amount you owe, the federal short term rate and an additional penalty of three percent.
Fines, Penalties, and Interest
You will also be given additional IRS penalties and interest for late, negligent or failure to file tax returns. These are also subjected to an income tax penalty with interest. The interest rate will accrue from the date of your return and will compound rather quickly. When you are late in filing your tax return and in making any payments, you will be charged an interest rate of 0.5% on a monthly basis. The amount maximum is 25% of the balance owed and is applicable to all money that is owed.
Your tax attorney will explain that you are also liable for an income tax penalty if you file a late return. Again, the penalty rate is 5% of the outstanding balance and is charged on a monthly basis. Unless you can prove that you have exigent circumstances and are not able to pay the amount you owe. In that case, you can possibly have your tax debt forgiven or reduced. If you give the information to your tax attorney, they can present this evidence to the IRS and negotiate the matter for you personally.
Did you overpay or underpay?
There is also an IRS underpayment penalty for underpaying your income taxes. The income tax penalty for this type of situation is called a failure-to-pay penalty. It applies as a penalty from the date that the balance was underpaid and like the other fines it accrues and builds on a monthly basis. Each IRS payment is subject to different penalties, so you may still be responsible for penalties on an earlier payment as well. Even if you believe you paid the amount. Or even if you have a refund coming, you may still incur a penalty. Your tax attorney will assist you and figure out any amount that is due and what you are responsible for.
You are important to us
If you do not have enough money to pay for the penalty, then you can ask your tax attorney what your options may be. One option would be for your tax attorney to file what’s called a waiver. A waiver may be granted to you on the grounds of financial hardship, or some other unfortunate situation you may have incurred. If you cannot pay the income tax penalty, then your tax attorney can help you determine which route would be best for you. In the case of an elderly person aged 62 or older, they are eligible for a waiver based upon a disability or any other reasonable cause. Your tax attorney is there to hold your hand and walk you through all of your options, so rest assured your best interests are being looked after.