Penalties Go Up For Late Tax Filers

late filing penalty

Chronically late tax filers know all about the penalties the IRS charges.

People who file late typically owe the IRS. It’s rarely the other way around. However, this year The Internal Revenue Service waived the penalties for those whose 2018 tax withholding and estimated tax payments fell short of their total tax liability for the year.

Circumstances That Lead IRS To Waive Penalties

According to the IRS, they had “seen an increasing number of taxpayers subject to estimated tax penalties, which apply when someone underpays their taxes. The number of people who paid this penalty jumped from 7.2 million in 2010 to 10 million in 2017, an increase of nearly 40 percent. The penalty amount varies but can be several hundred dollars.”

The penalty was waived this year for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. However, as a recent Accounting Today article states, “The usual percentage threshold is 90 percent to avoid a penalty, but the IRS lowered the penalty because of requests from Congress and complaints about all the changes in the withholding rules after the new tax law that led many taxpayers to under-withhold and end up owing taxes when they had their tax returns prepared.”

For Some Taxpayers Waiver Extensions Are Never Long Enough

But, lo and behold, there are still taxpayers who have yet to file! Even with the waiver and extension. It’s not surprising. There will always be people who will put off paying for years and have penalties and fees that exceed the taxes they owed. As a result of so many taxpayers who have yet to file, the IRS issued a warning that they will face higher tax penalties if they owe taxes and haven’t filed by June 14. It seems a two-month grace period just didn’t cut it for some folks.

A Few Penalty Exceptions

There are a few exceptions to this penalty deadline. Some of those who have yet to file will be granted further penalty waiver if they live in a combat zone, such as members of the military do. Also, first time offenders, such as those taxpayers who have filed and paid on time and haven’t been assessed any penalties for the past three years can often qualify to have the penalty abated.

Also, taxpayers who have been affected by a presidentially declared disaster may be able to abate the tax penalty if they filed or paid taxes due by the deadline. If you are among that group, and I’m sure there are many in Alabama who are, you need to call the number on the notice that you receive in the mail from the IRS for find out if they IRS can abate the tax penalty.

Extension Relates To Filing Not Paying

The IRS is always quick to point out that all extensions are related to filing tax returns. There are no extensions typically granted for paying what you owe. There are pretty much always fees attached to not paying. This year was unusual in that the IRS gave taxpayers a small grace period due to the complicated nature of the 2017 Tax Cut and Jobs Act. If you haven’t yet filed your 2018 tax returns, and you owe the IRS, you may need the help of a professional. If that’s the case, give us a call.

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