It often happens that people miss out on filing tax returns within the due date because of some or the other reason. In such cases where a person fails to file the required income tax or excise returns, the Internal Revenue Service charges a penalty to the taxpayer. Out of the many different penalties that can be applied by the IRS, penalty for late filing of tax returns is one.
The penalty for delay in filing returns implied by the IRS starts the very next day after the due date. So, if you fail to file your tax return on or before April 15, from April 16 onwards, a 5% monthly penalty is applied. The penalty is calculated on the amount that you owe as taxes. The maximum penalty according to law is 25% of the total amount owed by the taxpayer. This means that the maximum penalty amount is reached within 5 months from the due date.
It is indeed very important for you to file your tax returns on time even if the tax amount cannot be paid completely. Also, in case a taxpayer is late to file the return and adding to that even the taxes are not paid off on time, the penalty for late payment of taxes is also assessed by the IRS.
If a taxpayer is found guilty to file late tax returns with intent to commit fraud, then the penalty in such cases is significantly increased by the IRS. The penalty increases to 15% of the unpaid tax amount every month from the normal 5%. The total penalty amount may rise to 75% of the unpaid taxes. This penalty applies in very rare cases when the IRS thinks that there was an intentional tax fraud attempt.
The IRS holds the power to either reduce or completely eliminate the charged penalties if a valid reason is provided as to why you were delayed to file the tax return. If a fairly reasonable and genuine cause is given by the taxpayer, the IRS looks at the situation and analyzes the circumstances in which the returns were not filed. If the reason is found satisfactory, the penalties can be reduced or waved off.