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The IRS offers some relief of tax penalties for reasonable cause.
You may qualify for relief from penalties if you made an effort to comply with the requirements of the law, but were unable to meet your tax obligations, due to circumstances beyond your control.
Even if you can’t pay your taxes on time, you should still file your tax return by the due date. If you don’t file your tax return by the due date, you will be subjected to late-filing penalties on top of the taxes you owe.
If you owe tax and you don’t file your return on time, the late-filing penalty is usually 5% of the tax you owe for each month or partial month that your return is late. This applies up to a maximum of 25% of the tax owed.
If your return is more than 60 days late, the minimum penalty for late filing for tax year 2020 is the smaller of these:
You’ll usually have interest on any unpaid tax from the due date of the return until the payment date. The IRS interest rate is the federal short-term rate plus 3%. The rate is set every three months, and interest is compounded daily. The interest rate recently has been about 5%.
You’ll also have interest on late-filing penalties.
If you file on time but you don’t pay the total amount due, you’ll usually have to pay a late-payment penalty. This is 0.5% of the tax you owe per month or part of a month until you pay the tax in full. You’ll be charged up to a maximum penalty of 25% of the tax due.
The 0.5% rate increases to 1% if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy. If you file by the return due date, the rate decreases to 0.25% for any month an installment agreement is in effect.
An installment agreement can help you pay your taxes over time, rather than all at once in April. You can request an installment agreement by:
Send the completed document with your return.
You can file an online application if you owe $50,000 or less in combined taxes, penalties, and interest. If the IRS approves your request, they’ll set up a monthly payment plan to pay off what you owe.
Your fees for entering into an installment agreement include:
Your request for an installment agreement can’t be turned down if you owe less than $10,000 and all of these conditions apply:
You might still qualify for an installment agreement if either of these applies:
You might be better off using another payment method, like a bank loan or a credit card. You should determine which payment method results in the lowest overall cost.