Taxpayers who fail to pay their taxes can face additional penalties — even if the Internal Revenue Service (IRS) granted an extension. It may seem counterintuitive, but the agency can continue to charge interest and may even apply penalties if you do not pay your tax bill by the April 15th deadline.
Are you part of this group? If so, the IRS recently published a news release with some clarification.
Option #1: Complete tax returns. If possible, file tax returns and make payments to avoid additional interest and penalties.
If you cannot pay, even filing without a payment can help reduce the penalties. The IRS generally applies a 5% penalty of the tax owed for taxpayers that do not file their tax return. This accumulates every month. In contrast, those who file their tax return but have not made a payment are generally subject to a lower penalty rate of 0.5%.
It is important to act promptly. The penalty will increase if you file your returns more than 60 days late.
Option #2: Consider penalty relief. If you are hesitating to file your tax returns because you are concerned about these penalties, you should know that you may qualify for penalty relief.
The tax code went through substantial changes with the recent passage of the Tax Cuts and Jobs Act (TCJA). Not every taxpayer was able to make changes to their withholdings to reflect these changes, resulting in a larger tax bill then expected. To help compensate for the problems that came with the new tax law, the IRS changed its penalty structure.
In the past, taxpayers were required to pay 90% of their tax obligations through estimated payments or withholdings from paychecks. A failure to do so led to additional penalties. The agency reduced the threshold to 80 percent for the 2018 tax year. This means taxpayers will not be responsible for the same types of penalties as they were in the past.
Additional considerations: It is important to note the tax deadline varies for certain states. Taxpayers in Massachusetts, for example, had a tax due date of April 17, 2019. Thus, for Massachusetts residents, additional interest and penalties did not begin to accrue until after the April 17 deadline.
Massachusetts taxpayers that have yet to file their returns have options. An attorney experienced in this niche area of tax law can review your situation and discuss potential solutions.