Eight IRS Tax Penalties

The IRS assesses a number of penalties, with varying degrees of severity, depending on the type of violation. Some of the more common types of penalties include the following:

1. Failure to file a timely return and late payment:

The IRS charges a 5% combined penalty of 4½% for filing late, 1/2% for paying late, 1/4% for months covered by an installment agreement.

The maximum failure to file penalty is 22½%. The 4½% rate can be assessed each month, or part of a month, up to a maximum of 5 months (5 x 4½% = 22½%).

The maximum failure to pay penalty is 25%. The ½% rate can be assessed each month, or part of a month, up to a maximum of 50 months (50 x ½% = 25%).

When late filing and late payment run concurrently, the IRS assesses the combined rate of 5% (4½% for late filing plus ½% for late payment).

If the return is more than 60 days late, the penalty will be either $100 or 100% of the tax due, whichever is smaller.

2. Underpayment of estimated taxes:

Interest is charged on an underpayment (deficiency). The rate is determined quarterly and equals the federal short-term rate plus 3%.

3. Failure to supply a social security number where it is required:

The penalty is $50 for each failure.

4. Fraud:

the fraud penalty is 75% and applies to the portion of any tax underpayment due to fraud. Intent, which is a state of mind wherein the person knows and desires the consequences of his act, Fraud is distinguished from inadvertence, reliance on incorrect professional advice, honest difference of opinion. and negligence or carelessness

5. Filing a frivolous return:

The penalty for filing a frivolous is $500. This could be a situation where the return filed is an apparent attempt to interfere with the administration of the federal income tax laws. For example, purposely not including enough information to figure the correct tax.

A penalty up to $10,000 could assessed against a taxpayer who brings a frivolous court action.

6. Trust Fund Recovery Penalty:

The Trust Fund Recover penalty is 100% of the tax due. Trust fund taxes are employment taxes, including. federal income taxes required to be withheld from an employee's pay, plus social security and Medicare taxes required to be withheld from an employee's pay.

7. Dishonored Check:

For check $750 or more, a 2% penalty may be charged. For check lest than $750, the penalty is the check amount or $15, whichever is less.

8. Underpayment of taxes:

A 20% penalty may apply to the portion of an underpayment attributable to negligence or disregard of IRS rules and regulations. Negligence is failing to make a reasonable attempt to comply with the law.

The penalty for disregarding IRS rules or regulations may be avoided if you have a reasonable basis for your position. You must disclose your position on Form 8275 or Form 8275-R in the case of a good faith position contrary to a regulation.

If you have employees, using a reputable payroll service is a smart move. They're fairly inexpensive, reliable, save you tons of work and compliance headaches, and prevent you from getting slapped with stiff IRS penalties.

QuickBooks Self-Employed
For Freelancers and independent Contractors

- Organize your financial data into one central accounting system on the cloud
- Software kept up to date.
- Your data kept secure
- Anytime, anywhere data access.
- Pay your quarterly estimated taxes online.
- Export Schedule C to TurboTax at year-end for faster filing.
- Save up to 50% off QuickBooks Self-Employed. Track every deduction! Start your free trial now!

Have an accounting or bookkeeping question? Email it to me.