Quick Guide to Late Filing, Amended Returns, and Late Payment Penalties

Posted on April 19, 2013

For taxpayers that end up owing taxes, April 15 is the deadline for most folks to file their return AND pay any taxes that are due on that return. If you don’t file on time, you potentially face one set of penalties. If you don’t pay by this date, there’s another set of penalties that applies.

If you weren’t able to pay your entire 2012 tax bill with your return or your extension, there’s good news: The late payment penalty isn’t nearly as stiff as the late filing penalty.

The reason for this is because the IRS is far more interested in knowing how much you owe rather than having you pay it on time. They rely heavily on people filing their tax returns in order to make the proper tax assessment (never let the IRS do your tax return for you!). Knowing how much you them starts a well define process, but when the IRS doesn’t know how much you owe, they can get pretty grumpy about it.

Of course, the more you pay with your tax return or extension, the lower your penalty and interest charges are going to be in the long run. This is because all of your penalties and interest are a percentage of the unpaid balance due after April 15th.

The penalty for not filing a tax return is typically 5% per month or part of a month. One day is considered “part of a month”. This penalty caps out at 25% of the unpaid balance. Do note that if you properly file an extension, and pay the balance with the extension, then there is no penalty. The extension form essentially gives the IRS the same bottom line “amount due” number that they are looking for, just without the math showing how you came up with it. With your extension, you must pay at least 90% of the balance due on the final return in order to avoid penalties.

As already mentioned, the penalty for not paying is far less than the penalty for not filing. This amount is one half of one percent per month (or part of a month).

If you are subject to both the non-filing AND non-payment penalty in the same month, the combination of the two penalties is capped at 5%. If you file your return more than 60 days after the April 15th deadline (or after the extension deadline), then the minimum penalty is the lesser of $135 or the entire balance due.

What should you do if you already filed your federal tax return and then discover a mistake? That’s where our friend 1040-X, Amended Return, comes in.

Amended returns allow you to correct errors, change filing status, add or remove income and deductions, and do all the other things you’d normally do on a tax return. In my tax representation practice, I’ve fixed countless tax returns that were prepared incorrectly, even by licensed tax professionals. So, if you have any doubt at all about the accuracy of your tax return, get a second opinion.

Like everything with the IRS, there are deadlines for filing an amended return. You must file 1040-X within three years of the date you filed the original return, or within two years of paying the tax if you owed. It is not uncommon for individuals to be owed a refund on an old return, but they can’t claim it because they caught it more than three years later. Don’t miss out on potential refunds by waiting too long to amend.

Amended returns must be printed and mailed — they cannot be electronically filed. As such, it can take two to three months for the IRS to process these returns. If you are working with a Revenue Officer on an existing tax debt situation, the Revenue Officer will usually request that you file original and amended tax returns directly with them for faster processing.

I hope that this quick primer on late filing, penalties, and amendments will help save you some money. In summary:

  1. File a return, or at least an extension, by April 15 every year.
  2. If you owe, or expect to owe, pay as much as you can by April 15th in order to minimize penalties.
  3. File amended returns within three years of the original due date in order to avoid losing potential refunds.

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