IRS Penalties and How to Avoid Them

IRS Penalties can be severe, and you may need a professional to avoid expensive consequences. Hutton Tax Solutions may be able to offer assistance. Call us now!

What Are IRS Penalties?

IRS penalties are additional charges resulting from taxpayers failing to meet their tax obligations. For instance, failing to file a tax return timely, failure to pay taxes due timely, and so on. Employers can also face penalties for failure to remit any tax withheld from their employee’s paychecks by the applicable due date.

Leaving this unresolved can lead to additional charges that continue to accrue interest on your IRS account. An IRS appeals lawyer can help you submit unfiled tax returns for processing, get relief from penalties, and protect your rights against the IRS.

How to Calculate IRS Penalties and Interest

Unpaid tax penalties are generally calculated at 0.5% per month.

Penalties accrue interest if unpaid. Penalty types determine when and how much interest accrues. Upon receiving a balance due notice from the IRS, the amount due generally will not be charged interest if the payment is made on time.


How Much Are IRS Penalties?

The IRS penalty for failure-to-pay taxes is at most 25% of your unpaid tax. When failure-to-pay and late filing penalties are applied, the total due is calculated at a rate of 5% for failure-to-file (5%) and 0.5% for late payment penalties.

The failure-to-pay fine reduces to 0.25% when the individual tax return is filed on time with an approved payment plan. After ten days of getting the notice to levy, the failure-to-pay penalty is calculated at 10%.

Unpaid IRS balances that are due can result in IRS tax liens being placed on your property. Tax liens are claims on your property by the IRS for back tax debt. The IRS can file tax liens to compel you to pay unpaid taxes if and when an applicable property is sold. When an IRS lien is issued against your property, you will want to contact a Tax lien attorney for professional assistance.

IRS Penalty Relief

The IRS has two penalty abatement options to provide relief to qualifying taxpayers. The first is under the First-Time Abatement Program, which will waive IRS penalties for the first infraction on your account, such as a late filing penalty. As long as you have timely filed and paid your taxes in the past, you may qualify for this type of forgiveness.

The second abatement option can eliminate IRS penalties if the taxpayer has “reasonable cause” for not paying or filing taxes timely. A written request can be submitted to the IRS for review, and a fact-based determination will be made. The submission must include a signed IRS penalty abatement request form, along with accompanying documents to prove your circumstances for relief.

When contacting the IRS, it is crucial to have information from the IRS notice you received, details on your IRS penalties, and an explanation for the request you are making. You will find disputing IRS penalties to be easier if you have the assistance of an IRS tax attorney in Oklahoma

Getting IRS Penalties Waived

A new penalty relief program for taxpayers who file an income tax return before September 30, 2022, has been implemented by the IRS to assist taxpayers in returning to normal operations before the 2023 filing season. A total of $1.2 billion will be refunded to about 1.6 million taxpayers who were affected by the COVID-19 pandemic for the 2019 and 2020 tax years.

The relief cannot be applied to fraudulent returns but can remove failure-to-file and failure-to-pay IRS penalties. It is crucial to contact an IRS tax lawyer to check your eligibility.

The penalty relief procedure might not apply to all penalties, but you might still be eligible for relief if the penalty is not automatically eligible.

Avoiding IRS Penalties

Tax returns must be filed on time, and all balances must be paid timely to avoid a late payment penalty. Staying up-to-date on current IRS deadlines can ensure you are filing and paying by the applicable dates each year.

One of the most common mistakes is made when taxpayers request a filing extension for their returns, as this extension only grants a taxpayer additional time for filings, not payments. This means all balances unpaid by the April deadline will incur a failure-to-pay penalty, even with a valid extension in place.

To prevent balances, employees can make adjustments to their withholdings to ensure the proper taxes are being withheld on their paychecks. Taxpayers can also pay estimated taxes quarterly to avoid a larger bill come filing time.  

Audit IRS Penalties

The IRS will impose penalties for accuracy-related issues if your account is audited. You can challenge these IRS penalties, but they continue to accrue if unresolved.

Penalties can be severe, and you will need a professional to avoid their expensive consequences. An Oklahoma tax attorney can be of assistance. Call us now.