If you are going to owe a balance to the Internal Revenue Service for your 2019 Federal Taxes you may want to pay it timely at filing or make estimated tax payments quarterly. If not, you will be faced with an increased penalty added to your account. Although a taxpayer can file an extension of time to file until October 15, 2020 a payment of the whole balance is due by July 15, 2020. This is an already extended time to file and pay granted from April 15, 2020 by the Internal Revenue Service considering the current worldwide pandemic, Corona Virus or COVID-19. Under normal circumstances a taxpayer who files their tax return late is faced with a penalty of 5% of the unpaid tax for each month that the return is late. This penalty amount is only allowed to reach a maximum of up to 25% of the unpaid tax that is due. You must remember that on top of any penalty amounts that are added you will also see extra interest related to the penalty.
According to the IRS announcement that was posted on September 10, 2020
“IR-2020-207, September 10, 2020
WASHINGTON — The Internal Revenue Service today urged individuals who owe taxes but have not yet filed for 2019 to act now to avoid larger penalties that, by law, start after September 14.
The tax deadline was July 15 this year. Taxpayers who submitted an extension have until October 15 to file and do not face the failure to file penalty if they file their taxes by that deadline. But taxpayers need to remember that an extension to file is not an extension to pay. Any taxes they owed after the July 15 deadline are subject to the failure to pay penalty and interest.
Those taxpayers who didn’t request an extension, and still owe taxes, face both the failure to file and the failure to pay penalties. They should file now and pay what they can before larger penalties take effect after September 14.
The penalty for not filing a federal tax return by the due date, or extended due date, is generally 5% of the unpaid tax for each month or part of a month that a tax return is late, up to 25% of the unpaid tax. However, if the return is more than 60 days late, a minimum penalty applies. If no return has been filed after 60 days, the minimum penalty that can be charged is $435 or 100% of the unpaid tax, whichever is less. This year, that important 60-day date occurs after Sept. 14. In addition to penalties, interest will also be charged on any tax not paid by the July 15 due date.
Remember, if a refund is due, no penalty is charged on the late return filed by a taxpayer.
IRS Free File is available on IRS.gov through October 15 to prepare and e-file a 2019 individual return.”
Starting September 14, 2020 is when the harsher penalties take place. That is the 60 days deadline beyond the July 15, 2020 date that is stated in the IRS memo above. This means that if your return has not been postmarked, mailed in timely or E-filed then you will receive a penalty. As we stated above and different from any other prior years, this failing to file penalty amount is $435 or 100% of the unpaid tax due, whichever is less. If you failed to pay the IRS on time, then you will receive a large penalty amount for that also. A penalty of 0.5% of the unpaid tax for each month of part of the months that you are late with a maximum penalty amount of 25%. This penalty will continue to be assessed until the entire tax is paid. This penalty applies to taxpayers who will file a return for the 2019 tax year and owe a balance. Those taxpayers who are due tax refunds will not be subject to penalties and interest if you file your tax return late. However, you will have to eventually file your tax return in order to receive your refund from the IRS.
If this is your first year accruing abalance because of the late filed or a late payment penalty related to yourtax return, then there is relief. If the three years prior to your first year of taxes you owe is clear from penalties then you may request to have the penalties for the first year, removed. For Example, 2019 is the first year you are unable to pay your taxes and accrue a tax balance. These balances also have added penalties and related interest. The Internal Revenue Service will look at the three prior years, 2018, 2017 and 2016 to determine if you qualify. This request can usually be done verbally on the phone with an Internal Revenue Service Collections Unit Representative. If there were any penalties assessed to you within those three prior years that does not mean your entirely disqualified. It just means that you will have to write a letter to the Internal Revenue Service with your reasonable cause as to why the late filing or late payment occurred to request relief.Relief can be granted for penalties and related interest. The advantage would be to request the penalty relief over the phone because if you must mail in a reasonable cause request then it could take long for a determination to be made.
If you do owe a balance to the Internal Revenue Service and are unable to remove the penalty and pay the tax amounts in full at the time of it being requested, there are additional options for you. For taxpayers who qualify through means of financial disclosure you can pay your back taxes over an extended period. These payment plans are known as an Installment Agreement. There are Installment Agreement terms that can vary from 24 – 84 months depending on the type of tax that is due. The amount that will be paid during those time periods will depend on the current outcome of your financial statement or the amount of time that Is left for the balances to be paid in full. There are many payment options that are available to taxpayers, but each specific scenario will determine which one you qualify for. It would be best to work with a team of trained professionals who are aware of what the different programs are. A team of experts will be able to obtain all your financial information and determine what would be the best resolution for you.