Friday, April 17, 2015

What to Know about Late Filing and Late Paying Penalties



April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight facts that you should know about these penalties.

1.    Two penalties may apply.  If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

2.    Penalty for late filing.  The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.

3.    Minimum late filing penalty.  If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.

4.    Penalty for late payment.  The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.

5.    Combined penalty per month.  If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.

6.    File even if you can’t pay.  In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.

7.    Late payment penalty may not apply.  If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.

8.    No penalty if reasonable cause.  You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014.

Additional IRS Resources:

Thursday, April 16, 2015

If You Missed the Tax Deadline These Tips Can Help



April 15 has come and gone. If you didn’t file a tax return or an extension but should have, you need to take action now. Here are some tips for taxpayers who missed the tax filing deadline:
  • File as soon as you can.  If you owe taxes, you should file and pay as soon as you can. This will stop the interest and penalties that you will owe. IRS Direct Pay offers you a free, secure and easy way to pay your tax directly from your checking or savings account. There is no penalty for filing a late return if you are due a refund. The sooner you file, the sooner you’ll get it.
  • IRS Free File is your best choice.  Nearly everyone can use IRS Free File to e-file their federal taxes for free. If your income was $60,000 or less, you can use free brand-name tax software. If you made more than $60,000, use Free File Fillable Forms to e-file. This program uses electronic versions of IRS paper forms. It does some of the math and it works best for those who are used to doing their own taxes. Either way, you have a free option that you can only access on IRS.gov. It’s available at least through the Oct. 15 extension period.  
  • Use IRS e-file to do your taxes.  No matter who prepares your tax return, you can use IRS e-file through Oct. 15. E-file is the easiest, safest and most accurate way to file your taxes. The IRS will confirm that it received your tax return. The IRS issues more than nine out of 10 refunds in less than 21 days.
  • Pay as much as you can.  If you owe tax but can’t pay it in full, you should pay as much as you can when you file your tax return. IRS electronic payment options are the quickest and easiest way to pay your taxes. Pay the rest of the tax you still owe as soon as possible. Doing so will reduce future penalties and interest.
  • Use the IRS.gov tool to pay over time.  If you need more time to pay your tax, you can apply for an installment agreement with the IRS. The best way to apply is to use the IRS Online Payment Agreement tool. You can use the IRS.gov tool to set up a direct debit agreement. You don’t need to write and mail a check each month with a direct debit plan. If you don’t use the tool, you can use Form 9465, Installment Agreement Request to apply. You can get the form on IRS.gov/forms at any time.
  • A refund may be waiting.  If you are due a refund, you should file as soon as possible to get it. Even if you are not required to file, you may still get a refund. This could apply if you had taxes withheld from your wages or you qualify for certain tax credits. If you do not file your return within three years, you could lose your right to the refund.
Additional IRS Resources:

Wednesday, April 15, 2015

A Dozen Key Points about Paying Your Taxes



The IRS offers several payment options if you owe federal tax. Here are a dozen key points to keep in mind when you pay your taxes this year.

1.    Never send cash. Electronic payment options are the quickest and easiest way to pay your tax.

2.    Check out IRS Direct Pay to pay directly from your bank account. Access Direct Pay on IRS.gov. It’s secure and free. You will get instant confirmation that you have submitted your payment.

3.    You can pay taxes electronically 24/7 on IRS.gov. Just click on the ‘Payments’ tab near the top left of the home page for details.

4.    Pay in a single step by using your tax software when you e-file. If you use a tax preparer, ask the preparer to make your tax payment electronically.

5.    Whether you e-file your tax return or file on paper, you can choose to pay with a credit or debit card. The company that processes your payment will charge a processing fee.

6.    You may be able to deduct the credit or debit card processing fee on next year’s return. It’s claimed on Schedule A, Itemized Deductions.

7.    Enroll in the Electronic Federal Tax Payment System. You can use EFTPS to pay your federal taxes electronically. You have a choice to pay using the Internet, or by phone using the EFTPS Voice Response System.

8.    If you can’t pay electronically, you can still pay by a personal or cashier’s check or money order. Make it payable to the “U.S. Treasury.” Be sure to write your name, address and daytime phone number on the front of your payment. Also, write the tax year, form number you are filing and your Social Security number. Use the SSN shown first if it's a joint return.

9.    If you pay by paper check, complete Form 1040-V, Payment Voucher. Mail it with your tax return and payment to the IRS. Make sure you send them to the address listed on the back of Form 1040-V. This will help the IRS process your payment and post it to your account. You can get the form on IRS.gov/forms at any time.

10.    Remember to include your payment with your tax return but do not staple or clip it to any tax form.

11.    Even if you can’t pay your tax in full, the IRS urges you to file your tax return on time. You should pay as much as you can with your tax return. That will help keep your penalty and interest costs down. You have options such as an installment agreement, which allows you to pay the balance over time. The Online Payment Agreement tool on IRS.gov is the easy way to apply.

12.    To listen to a recorded message on this subject, call TeleTax at 800-829-4477. Select Topic 202, Payment Options.

Additional IRS Resources:

Health Care Law and Taxes – More Time to File



Most taxpayers will simply check a box on their return to indicate that everyone listed on the front of the return has qualifying health care coverage for the entire year and may not need more time to file.

However, people who haven’t finished filling out their return can get an automatic six-month extension. The fastest and easiest way to get the extra time is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.

If you received your coverage through a Marketplace, you may have received an incorrect Form 1095-A, Health Insurance Marketplace Statement, or your form may have been delayed. If you have not yet filed your income tax return, you should file by April 15 using either the Form 1095-A that you have received or the corrected form, if available. Alternatively, you may file for an extension of time to file by April 15 using Form 4868.  For more information including information about what to do if you already filed your tax return, see our Incorrect Forms 1095-A and the Premium Tax Credit questions and answers.

An extension to file will give you until Oct. 15 to file your taxes. It does not give you more time to pay your taxes. You still must estimate and pay what you owe by April 15 to avoid a late filing penalty. You will be charged interest on any tax that you do not pay on time. You may also owe a penalty if you pay your tax late. In light of some tax filers not receiving their correct Forms 1095-A, in time, the Treasury Department and IRS released guidance providing penalty relief for individuals who are unable to file an accurate return by April 15. Generally, in order to qualify for this relief, taxpayers must file either Form 1040 series or Form 4868 by April 15. A return must be filed by Oct. 15.  More specifics on the relief is  included in Notice 2015-30, Penalty Relief Related To Incorrect Or Delayed Forms 1095-A.

For more information about the Affordable Care Act, visit IRS.gov/aca.