If You Know you Owe…

It is costly to owe the IRS!

If you owe the IRS and fail to file a return by the deadline, you will have to pay a Failure to File penalty, a Failure to Pay penalty and interest on the balance due. By timely filing
the return, you can avoid the Failure to File penalty. Balance due returns can be electronically filed, with or without payment.

Failure to File Penalty

• This penalty only applies if you have a balance due. If you are eligible for a refund, there is no penalty for filing late.
• Penalty is 5% of the amount due for each month the tax return is late, up to a maximum penalty of 25%.
• If your tax return is more than five months late, simply multiply your balance due by 25% to calculate your failure to file penalty.

Failure to Pay Penalty

• Penalty is 0.5% of the amount you owe for each month the tax is not paid in full.
• There is no maximum limit to the Failure-to-Pay penalty.
• The penalty is calculated from the original payment deadline (April 15) until the balance due is paid in full. The extension to October 15 is only an extension to file, not an extension to pay.

Interest

• The IRS 2010 interest rate on underpayment of tax is 4%.
• Interest is calculated for each day your balance due is not paid in full.

IRS Payment Plan / Installment Agreement Costs Money
The IRS charges a user fee to set up an installment agreement. The user fee for new installment agreements is $105 or $52 for agreements where payments are deducted directly from your bank account. Taxpayers with income at or below established poverty levels can apply for a reduced user fee of $43. There is also a user fee of $45 regardless of income to reinstate defaulted agreements or restructure existing agreements.

Avoid installment agreement user fee by paying full amount within 120 days
You will avoid the $43 – $105 user fee but penalties and interest will still be charged.

See also 4012 section on “Balance Due Returns.”