IRS Tax Penalty Calculator
Paying the correct amount of tax is important. Underpayment, as well as late filings, leads to penalties being applied. These penalties build over time, so doing everything you can to avoid them is key.
While this appears straightforward, knowing the cost of those penalties can be trickier. It’s not just the percentage figure of the tax you owe, but also interest being added that complicates matters. In saying that, there is a way to keep on top of potential penalties, and that is via an IRS tax penalty calculator.
What Is A Tax Penalty Calculator?
The concept of an IRS tax penalty calculator is self-explanatory. This small program is capable of telling you what you should expect to pay if you either miss your filing date or have failed to pay any tax owed.
Like to know more about the areas where you may incur a penalty? Additional details are included below.
How A Tax Calculator Works
An IRS tax penalty calculator is easy to operate. However, it must be stressed you should only use one that specifically deals with the IRS. In doing so, you will be given an accurate figure.
A calculator requires very few details to work. It needs the year you are referring to, the tax due, and dates related to both submission and when it should be paid. A calculator will also allow you to include a payoff date as this directly influences the size of the penalty.
Once the calculator has those details, it takes seconds for it to calculate the penalties that you will need to pay. After this, it’s then up to you to work out the easiest way in which you can pay not only the tax aspect but these additional charges as well before you hit your desired payoff date.
This is important information for the calculator. Behind the scenes, there are details of IRS codes along with details as to the penalties and how they are applied to various areas. Ultimately, the calculator takes these codes, applies your information to them, and it comes up with a final cost.
Understanding Tax Penalties
The issue of penalties related to filing your tax return is a bit of a sore subject. We certainly don’t enjoy being hit by fines, so understanding where things can go wrong does help. Also, do remember that any penalties immediately cease upon full payment of tax owed.
According to the IRS, there are four areas where penalties may be added to the sum owed to them. Additional details regarding these four areas can be found on the IRS website.
Failure To File Income Tax
The first area is a failure to file. This can apply to either missing the submission date or, alternatively, missing your extension date if you have applied for this and it has been granted. You will not receive a second extension.
Failure To Pay Income Tax
The next area is a failure to pay. This is when you have failed to pay tax owed by the dates set out by the IRS. It’s worth noting receiving an extension to file does not mean you receive an extension to pay.
Failed To Pay Proper Estimated Tax
This area refers to an individual failing to pay enough tax over the year in line with quarterly estimated tax payments.
The final area is when your check is not honored by your bank. Note that this can also apply to other forms of payment if they are returned.
Tax Penalties And How They are Applied
So, what about the penalties themselves? Well, we mentioned earlier how it involves a percentage and then interest being added, but there’s a bit more to it than that.
The actual penalty you pay depends on which one of the four areas you have fallen foul of. However, it can be summarized along these lines.
For failure to file, you receive a penalty of 5% of unpaid tax that has not been reported. This is charged on a monthly basis and you pay the full 30 days even if your filing is only a day or two late.
For failure to pay, you are going to receive a penalty of 0.5% of the tax amount that you were supposed to pay. If you are on an installment plan, then this is reduced to 0.25%. However, the figure goes up to 1% if you fail to pay within 10 days of a notice of intent to levy.
As with the failure to file, you are charged the full month even if you pay in less than 30 days. There’s also a recurring charge which is continually added until it is either paid or it reaches a total of 25%.
The only other penalty to mention here is in connection to the dishonored payment. If the payment was more than $1,250, then the penalty is 2% of the total tax. If it’s under $1,250, then the penalty is $25.
Exceptions To The Rule
One area where an IRS tax penalty calculator cannot help you is in connection to any potential exceptions to the penalties. The IRS does have the ability to remove a penalty at its discretion, but you need to fit their criteria for this to happen.
The other way in which a penalty may be waived is if you can supply a valid reason why it was incurred in the first place. This can be tough and, as we just mentioned, it’s up to the IRS whether they will accept the reason.
Of course, the best approach is to avoid getting into this position to begin with or to ask for an extension if you know submitting your return will be problematic.
Other Factors To Consider (With IRS Tax Penalties)
You should always try to pay the balance due for each tax year – or else you will end up with a tax liability. This results in a minimum penalty – and that’s your best case scenario.
Even missing the due date for federal taxes can cause a late filing penalty – and if you miss payment date(s) – you’ll have a late payment penalty. Usually the solution here is to file an installment agreement, if you can really can’t make the payment on the proper due date of the return.
The Bottom Line On IRS Tax Penalties
Remove the guesswork associated with any penalties you may have to incur with the IRS by taking full advantage of a tax penalty calculator. In a few minutes, you will have accurate details allowing you to then decide on your next move.
Now, there’s no need to stress about it all when a solution is right there before you. An offer in compromise can help resolve any issues with your income tax return, and a qualified tax professional will be able to best advise you on any issues with your tax bill.
If you file your paperwork properly, and properly perform the correct tax withholding procedures – next year you may get a tax refund, rather than facing a tax penalty.
IRS interest rates are another issues you can face, if you miss the filing deadline. There are many complex Internal Revenue codes – and none of them work in your favor.
- “13036.” IRS – Penalties for Filing and Paying Late, kb.drakesoftware.com/Site/Browse/13036/IRS-Penalties-for-Filing-and-Paying-Late.
- Bell, Kay. “Tax Penalty For Failure To File, Failure To Pay Or For Underpaying All Year.” Bankrate, www.bankrate.com/finance/taxes/tax-penalty-situations-and-how-to-avoid-them.aspx.
- Bird, Beverly. “Internal Revenue Service Penalties for Late Filing and Payment of Taxes.” The Balance, 30 June 2020, www.thebalance.com/penalties-for-late-payment-and-late-filing-3192945.
- Brock, Catherine. “This Simple Tax Move Can Spare You Penalties.” The Motley Fool, The Motley Fool, 16 Feb. 2020, www.fool.com/taxes/2020/02/16/this-simple-tax-move-can-spare-you-penalties.aspx.
- “Calculating IRS Penalties & Interests: Household Employment.” HomeWork Solutions, 17 July 2020, www.homeworksolutions.com/knowledge-center/how-does-the-irs-calculate-penalties-and-interest/.
- Carnes, David. “IRS Penalties If a Tax Return Is Incorrect.” Finance, 21 Nov. 2017, finance.zacks.com/irs-penalties-tax-return-incorrect-3232.html.
- “Civil Penalties Relief: Chicago Tax Attorneys: IRSTax Debt.” Civil Penalties Relief | Chicago Tax Attorneys | IRS Tax Debt, www.theshortchicagotaxlawyer.com/civil-penalties/abatements-relief.
- Common IRS Tax Penalties, loopholelewy.com/loopholelewy/12-irs-penalties/irs-penalties-02-common-penalties.htm.
- “Common Sense and Reasonable Cause for IRS Penalties.” The Tax Adviser, 22 Oct. 2020, www.thetaxadviser.com/newsletters/2020/oct/reasonable-cause-irs-penalties.html.
- “A Big Tax Deadline Is Just a Week Away. Here’s What You Need to Know to Avoid Underpayment Penalties.” CNBC, CNBC, 8 Jan. 2020, www.cnbc.com/2020/01/08/a-tax-deadline-is-a-week-away-how-to-avoid-underpayment-penalties.html.
- Davis, Manny. “6 Common IRSTax Penalties on Small Business Owners.” All Business, Dun & Bradstreet, 11 May 2010, www.allbusiness.com/6-common-irs-tax-penalties-on-small-business-owners-14416466-1.html.
- Defenders, Top Tax. Criteria for Requesting an IRS Waiver of Tax Penalties and Interest, www.toptaxdefenders.com/blog/criteria-for-requesting-an-irs-waiver-of-tax-penalties-and-interest.
- “Don’t Overpay the IRS!” Debt.com, Debt.com, LLC, 29 Apr. 2020, www.debt.com/tax-debt/irs-penalties/.
- “Don’t Pay an IRS Penalty Without Looking Into Penalty Relief.” H&R Block, 28 Apr. 2020, www.hrblock.com/tax-center/irs/audits-and-tax-notices/penalty-abatement-realities-may-not-aware/.
- “Estimated Taxes.” Internal Revenue Service, www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.
- “Home.” Tenenbaum Law, P.C., www.litaxattorney.com/what-taxpayers-need-to-know-about-fighting-irs-penalties/.
- “How to Fight IRS Penalties: Individual Tax.” 20/20 Tax Resolution, 31 Aug. 2020, 2020taxresolution.com/individual-tax-problems/penalties/irs-penalties/.
- “How to Reduce IRS Penalties and Interest.” Landmark Tax Group, 11 June 2019, landmarktaxgroup.com/irs-penalties/how-to-reduce-irs-penalties-and-interest.
- “How to Reduce or Remove Three Common IRSTax Penalties.” Amy Northard, CPA – The Accountant for Creatives®, The Accountants for Creatives, 13 Sept. 2019, amynorthardcpa.com/how-to-reduce-or-remove-three-common-irs-tax-penalties/.
- “Individual Mandate Penalty You Pay If You Don’t Have Health Insurance Coverage.” HealthCare.gov, www.healthcare.gov/fees/fee-for-not-being-covered/.
- “IRS First-Time Penalty Abatement.” AICPA, future.aicpa.org/resources/article/irs-first-time-penalty-abatement.
- “IRS Penalties & Interest Relief.” Tax Group Center, 20 Apr. 2020, www.taxgroupcenter.com/irs-penalties-interest/.
- “IRS Penalties and Penalty Relief FAQs.” IRS Mind, 13 Nov. 2020, www.irsmind.com/irs-penalties-and-penalty-relief/irs-penalty-faqs/.
- “IRS Penalty Elimination.” Michael S. Anderson P.C., www.taxlawyeraz.com/irs-penalty-elimination.
- “IRS Penalty Relief.” ALG Tax Solutions, 1 Mar. 2017, www.algtaxsolutions.com/services/tax-resolution-services/irs-penalty-relief.
- “IRSTax Penalties.” IRS Tax Penalties Akram | Assurance, Advisory & Tax Firm, www.aifundservices.com/Taxpenalties.php.
- “IRSTax Penalties.” TFX, www.taxesforexpats.com/expat-tax-advice/IRS-tax-penalties.html.
- “IRSTax Penalties: Tax Evasion, Late Taxes, Filing Back Taxes.” IRS Tax Penalties | Tax Evasion, Late Taxes, Filing Back Taxes, www.wallandassociates.net/irs-penalties.
- “IRSTax Penalty Information.” H&R Block, 15 June 2018, www.hrblock.com/tax-center/irs/audits-and-tax-notices/irs-penalties/.
- “IRSTax Penalty Relief.” Tax Helpers, 15 Dec. 2016, taxhelpers.com/services/avoid-irs-penalties/.
- Kenton, Will. “What Is the Underpayment Penalty?” Investopedia, Investopedia, 4 Dec. 2020, www.investopedia.com/terms/u/underpaymentpenalty.asp.
- “Late Filing, Payment Penalties.” Efile.com – It’s Less Taxing, www.efile.com/tax-penalties/.
- Lea, Brittany De. “Don’t Get Hit with These Common IRSTax Penalties.” Fox Business, Fox Business, 12 Feb. 2020, www.foxbusiness.com/money/tax-season-2020-irs-penalties.
- Luthi, Written by: Ben, et al. “IRS Penalties: 5 Things to Know: Credit Karma Tax®.” Credit Karma, 13 Dec. 2020, www.creditkarma.com/tax/i/irs-penalties-things-to-know.
- Mohr, Angie. “IRS Penalties If a Tax Return Is Incorrect.” Small Business – Chron.com, Chron.com, 26 Oct. 2016, smallbusiness.chron.com/irs-penalties-tax-return-incorrect-61704.html.
- Murray, Jean. “IRS Penalties for Late Filing and Late Payment Explained.” The Balance Small Business, www.thebalancesmb.com/penalties-does-the-irs-impose-397710.
- Orem, Tina. “What Is the Penalty for Failure to File Taxes?” NerdWallet, 6 Dec. 2020, www.nerdwallet.com/article/taxes/penalty-for-failure-to-file-taxes.
- “Penalties.” IRS Tax Penalties for Noncompliance: Civil, Accuracy & Trust Fund, www.taxnotes.com/document-list/tax-topics/compliance/penalties.
- “Penalty Relief.” Internal Revenue Service, www.irs.gov/businesses/small-businesses-self-employed/penalty-relief.
- “Tax Fraud Penalties for IRS or Federal Taxes.” Gabaie & Associates, LLC | IRS and Maryland Tax Attorney, www.reliabletaxattorney.com/tax-fraud-penalties.
- “Tax Penalties for Not Filing Tax Returns.” IRS Tax Lawyer, 28 Sept. 2020, klasing-associates.com/tax-evasion-fraud-representation/tax-penalties-for-not-filing-tax-returns/.
- “Tax Penalties.” Community Tax, 21 Jan. 2019, www.communitytax.com/irs-tax-penalties/.
- “Topic No. 653 IRS Notices and Bills, Penalties, and Interest Charges.” Internal Revenue Service, www.irs.gov/taxtopics/tc653.
- Toups, Posted by Bishop, and Bishop Toups. “Penalties and Interest: Sorting Our IRSTax Bills.” Law Offices of Daily & Toups, 31 Jan. 2020, taxattorneydaily.com/penalties-and-interest/.
- TurboTax – Taxes, Income Tax. “5 IRS Penalties You Want to Avoid.” TurboTax Tax Tips & Videos, turbotax.intuit.com/tax-tips/tax-payments/5-irs-penalties-you-want-to-avoid/L9m4AIREO.
- TurboTax – Taxes, Income Tax. “How to Deal with Penalties from Tax Non-Payment.” TurboTax Tax Tips & Videos, turbotax.intuit.com/tax-tips/tax-payments/how-to-deal-with-penalties-from-tax-non-payment/L7ZV18bXR.
- “Understanding Penalties and Interest: Internal Revenue Service.” Understanding Penalties and Interest | Internal Revenue Service, www.irs.gov/businesses/small-businesses-self-employed/understanding-penalties-and-interest.
- W., Dennis. “IRS Penalties – Tax Defense Network: Tax Debt Relief Help.” Tax Defense Network, 24 Sept. 2020, www.taxdefensenetwork.com/irs-penalties/.
- “What Are the Tax Penalties and Fines for U.S. Expats?” 1040 Abroad, 6 Aug. 2019, 1040abroad.com/faq/tax-penalties-and-fines-for-us-expats/.
- “What You Need to Know If You’re Facing an IRS Civil Penalty.” SOLVABLE, 21 May 2020, www.solvable.com/tax-debt/irs-civil-penalty/.