There are different kinds of tax penalties that the tax laws authorize and allow the Internal Revenue Service to assess. Here is a summary of the common ones.
Failure To File
When tax returns are not filed on or before due date (including extension), the IRS charges a Failure To File penalty.
The tax penalty is 5% of the unpaid tax for each month or part of the month that the return is late. Maximum rate is 25% (5 months) of your balance.
If the return is more than 60 days late, a minimum penalty applies - either $435 or 100% of the tax owed, whichever is smaller, for returns due after 1/1/2020.
Failure To Pay
The IRS requires all taxes to be paid by the original filing deadline (without extension). Taxes owed after the due date will be assessed a Failure To Pay penalty..
The tax penalty is 0.5% of the unpaid tax for each month or part of the month that the tax payment is late. Maximum rate is 25% (50 months) of your balance.
If you set up an installment agreement with the IRS, the tax penalty is reduced to 0.25% of the unpaid tax while the installment agreement is in effect.
When both the Failure To File and Failure To Pay penalties apply to the same month, the Failure To File penalty is decreased by the Failure To Pay penalty, so the combined Failure To File and Failure To File penalty is 5% for any month.
Failure To Pay Proper Estimated Tax
If you owe more than $1,000 when you file your tax returns, you may be required to make estimated payments, or you may be subject to Failure To Pay Proper Estimated Tax penalty.
Estimated payments are calculated based on how much taxes you owe when you file your tax return and divide it by 4. Then a quarterly tax payment is required on or before April 15, June 15, September 15, and January 15.
"Safe Harbor" methods are allowed to calculate and determine whether you are subject to penalty. If you meet one of the two safe harbor amounts, the IRS will not charge a Failure To Pay Proper Estimated Tax penalty.
1. 90% of the tax you owe for the current year
2. 100% (or 110%) of last year's total tax
Pay 100% of the tax shown on your prior-year tax return. Use the tax shown before applying estimated payments, withholding or refundable tax credits.
a. If your adjusted gross income is less than $150,000 (or $75,000 if your filing status is married filing separately), pay 100% of your prior-year tax
b. If your adjusted gross income is more than $150,000 (or $75,000 if your filing status is married filing jointly), pay 110% of your prior-year tax
Accuracy-Related Penalty
A 20% of the understatement of tax will be assessed in several scenarios:
- Negligence: failure or lack of any reasonable effort to comply with IRS rules and regulations and use proper care in preparing a tax return.
- International Disregard: careless, reckless, or intentional disregard of the tax code when you prepare your tax return.
- Substantial Understatement: if you understate your tax liabilities by more than $5,000 (or by at least 10%), then you have substantially understated your income.
- Substantial Valuation Misstatement: if you substantially misstate the value of any property by 150% or more on your tax return (based on a valuation or adjusted basis) or that you incorrectly claim the price of a property or service related to a transaction with another person(s) by 200% or more (or 50% or less) than the actual true amount.
- Substantial Overstatement of Pension Liabilities: if a company substantially overstates pension liabilities by 200% or more of the amount determined to be correct.
- Substantial Gift or Estate Tax Valuation Understatement: if the value of the property reported on an estate or gift tax return is 65% or less of the correct valuation amount. Of the tax understatement is due to a "gross valuation" misstatement of 40% or less of the correct amount, the penalty is 40%.
- Understatement Related to Listed or Reportable Transactions: the penalty is 20% of the understatement of tax from listed and reportable transactions if the transaction was disclosed, or 30% if the transaction was not disclosed.
Dishonored Check
If the check you send to the IRS is returned due to various reasons, the IRS charges a Dishonored Check penalty of 2% of the amount of the check unless it is less than $1,250. In that case, the penalty is $25 or the amount of the check, whichever is lower.
S-Corporation Tax Return Failure-To File Penalty
If an S-Corporation is required to file a tax return Form 1120-S, and the tax return is filed late (including extension), a penalty is assessed. The penalty is $220 for each month or part of a month, up to 12 months, the tax return is late, multiplied by the total number of shareholders in the S-Corporation.
The minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $450.
Partnership Tax Return Failure-To File Penalty
If a partnership is required to file a tax return Form 1065, and the tax return is filed late (including extension), a penalty is assessed. The penalty is $220 for each month or part of a month, up to 12 months, the tax return is late, multiplied by the total number of partners in the partnership.
Form 1099 Penalty
Information returns Forms 1096 and 1099 are required to be filed by their corresponding due dates. Filing late will incur the following penalty per form/recipient:
2024: 30 Days Late: $60; 31 Days Late Through August 1: $120; After August 1 or Not Filed: $310; Intentional Disregard: $630
2023: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $580
2022: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $570
2021: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $560
2020: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $550
2019: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $540
2018: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $530
Form 5471 Penalty
If a Form 5471 is required to report a foreign corporation owned by a US-resident alien, and the form is filed late (including extension), a penalty of $10,000 per information return is assessed. In additions, the IRS assesses an additional $10,000 for each month the failure continues, beginning 90 days after the IRS notifies the taxpayer of the failure, up to a maximum of $60,000 per return.
Form 5471 Penalty
If a Form 5472 is required to report a foreign-owned corporation or a foreign corporation engaged in a US trade or business, and the form is filed late (including extension), a penalty of $25,000 per information return is assessed. In additions, the IRS assesses an additional $25,000 for each month the failure continues, beginning 90 days after the IRS notifies the taxpayer of the failure, with no maximum peanlty.
Form 8865 Peanlty
If a Form 8865 is required to report a foreign partnership owned by a US-resident alien, and the form is filed late (including extension), a penalty of $10,000 per information return is assessed. In additions, the IRS assesses an additional $10,000 for each month the failure continues, beginning 90 days after the IRS notifies the taxpayer of the failure, up to a maximum of $60,000 per return.
FBAR Form 114 Peanlty
If an FBAR Form 114 is required to report foreign financial assets accounts with more than USD10,000 in aggregated balance, and the form is filed late (including extension), a penalty of $15,611 (inflation adjusted for 2023) is assessed for non-willful violation, and a penalty of $156,107 (inflation adjusted for 2023) or 50% of the balance of the account, whichever is greater, is assessed for willful violation.
Failure To File
When tax returns are not filed on or before due date (including extension), the IRS charges a Failure To File penalty.
The tax penalty is 5% of the unpaid tax for each month or part of the month that the return is late. Maximum rate is 25% (5 months) of your balance.
If the return is more than 60 days late, a minimum penalty applies - either $435 or 100% of the tax owed, whichever is smaller, for returns due after 1/1/2020.
Failure To Pay
The IRS requires all taxes to be paid by the original filing deadline (without extension). Taxes owed after the due date will be assessed a Failure To Pay penalty..
The tax penalty is 0.5% of the unpaid tax for each month or part of the month that the tax payment is late. Maximum rate is 25% (50 months) of your balance.
If you set up an installment agreement with the IRS, the tax penalty is reduced to 0.25% of the unpaid tax while the installment agreement is in effect.
When both the Failure To File and Failure To Pay penalties apply to the same month, the Failure To File penalty is decreased by the Failure To Pay penalty, so the combined Failure To File and Failure To File penalty is 5% for any month.
Failure To Pay Proper Estimated Tax
If you owe more than $1,000 when you file your tax returns, you may be required to make estimated payments, or you may be subject to Failure To Pay Proper Estimated Tax penalty.
Estimated payments are calculated based on how much taxes you owe when you file your tax return and divide it by 4. Then a quarterly tax payment is required on or before April 15, June 15, September 15, and January 15.
"Safe Harbor" methods are allowed to calculate and determine whether you are subject to penalty. If you meet one of the two safe harbor amounts, the IRS will not charge a Failure To Pay Proper Estimated Tax penalty.
1. 90% of the tax you owe for the current year
2. 100% (or 110%) of last year's total tax
Pay 100% of the tax shown on your prior-year tax return. Use the tax shown before applying estimated payments, withholding or refundable tax credits.
a. If your adjusted gross income is less than $150,000 (or $75,000 if your filing status is married filing separately), pay 100% of your prior-year tax
b. If your adjusted gross income is more than $150,000 (or $75,000 if your filing status is married filing jointly), pay 110% of your prior-year tax
Accuracy-Related Penalty
A 20% of the understatement of tax will be assessed in several scenarios:
- Negligence: failure or lack of any reasonable effort to comply with IRS rules and regulations and use proper care in preparing a tax return.
- International Disregard: careless, reckless, or intentional disregard of the tax code when you prepare your tax return.
- Substantial Understatement: if you understate your tax liabilities by more than $5,000 (or by at least 10%), then you have substantially understated your income.
- Substantial Valuation Misstatement: if you substantially misstate the value of any property by 150% or more on your tax return (based on a valuation or adjusted basis) or that you incorrectly claim the price of a property or service related to a transaction with another person(s) by 200% or more (or 50% or less) than the actual true amount.
- Substantial Overstatement of Pension Liabilities: if a company substantially overstates pension liabilities by 200% or more of the amount determined to be correct.
- Substantial Gift or Estate Tax Valuation Understatement: if the value of the property reported on an estate or gift tax return is 65% or less of the correct valuation amount. Of the tax understatement is due to a "gross valuation" misstatement of 40% or less of the correct amount, the penalty is 40%.
- Understatement Related to Listed or Reportable Transactions: the penalty is 20% of the understatement of tax from listed and reportable transactions if the transaction was disclosed, or 30% if the transaction was not disclosed.
Dishonored Check
If the check you send to the IRS is returned due to various reasons, the IRS charges a Dishonored Check penalty of 2% of the amount of the check unless it is less than $1,250. In that case, the penalty is $25 or the amount of the check, whichever is lower.
S-Corporation Tax Return Failure-To File Penalty
If an S-Corporation is required to file a tax return Form 1120-S, and the tax return is filed late (including extension), a penalty is assessed. The penalty is $220 for each month or part of a month, up to 12 months, the tax return is late, multiplied by the total number of shareholders in the S-Corporation.
The minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $450.
Partnership Tax Return Failure-To File Penalty
If a partnership is required to file a tax return Form 1065, and the tax return is filed late (including extension), a penalty is assessed. The penalty is $220 for each month or part of a month, up to 12 months, the tax return is late, multiplied by the total number of partners in the partnership.
Form 1099 Penalty
Information returns Forms 1096 and 1099 are required to be filed by their corresponding due dates. Filing late will incur the following penalty per form/recipient:
2024: 30 Days Late: $60; 31 Days Late Through August 1: $120; After August 1 or Not Filed: $310; Intentional Disregard: $630
2023: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $580
2022: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $570
2021: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $560
2020: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $550
2019: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $540
2018: 30 Days Late: $50; 31 Days Late Through August 1: $110; After August 1 or Not Filed: $290; Intentional Disregard: $530
Form 5471 Penalty
If a Form 5471 is required to report a foreign corporation owned by a US-resident alien, and the form is filed late (including extension), a penalty of $10,000 per information return is assessed. In additions, the IRS assesses an additional $10,000 for each month the failure continues, beginning 90 days after the IRS notifies the taxpayer of the failure, up to a maximum of $60,000 per return.
Form 5471 Penalty
If a Form 5472 is required to report a foreign-owned corporation or a foreign corporation engaged in a US trade or business, and the form is filed late (including extension), a penalty of $25,000 per information return is assessed. In additions, the IRS assesses an additional $25,000 for each month the failure continues, beginning 90 days after the IRS notifies the taxpayer of the failure, with no maximum peanlty.
Form 8865 Peanlty
If a Form 8865 is required to report a foreign partnership owned by a US-resident alien, and the form is filed late (including extension), a penalty of $10,000 per information return is assessed. In additions, the IRS assesses an additional $10,000 for each month the failure continues, beginning 90 days after the IRS notifies the taxpayer of the failure, up to a maximum of $60,000 per return.
FBAR Form 114 Peanlty
If an FBAR Form 114 is required to report foreign financial assets accounts with more than USD10,000 in aggregated balance, and the form is filed late (including extension), a penalty of $15,611 (inflation adjusted for 2023) is assessed for non-willful violation, and a penalty of $156,107 (inflation adjusted for 2023) or 50% of the balance of the account, whichever is greater, is assessed for willful violation.
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