Originally published: May 26, 2023 (distributed by Andrews McMeel Syndication)
What happens if you filed your tax return on time (by April 18 this year) but did not include your tax payment?
If you realize the mistake, send in your payment to lessen penalties and interest. Otherwise, expect a letter from the IRS, and be sure to read it carefully and immediately -- and, of course, review it with your accountant right away, as each tax situation is unique to the individual. The letter will ask you to send in a check for the taxes owed plus penalties and interest for failure to pay taxes. (Because you filed your return, you won't be charged penalties for failure to file.)
Expect to receive the letter, called an initial tax assessment notice (CP14), in early-to-mid-June if you filed on time. "By law (Section 6303 of the Internal Revenue Code), [the IRS] must notify you of a tax assessment within 60 days," an IRS spokesperson told me. Read more about CP14 at tinyurl.com/3ezx6cj4.
The penalty for failure to pay is 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid. The penalty "won't exceed 25% of your unpaid taxes," quoting the IRS Failure to Pay Penalty webpage (tinyurl.com/mtbec4c2).
Interest will also be assessed. The current quarterly interest rate (April through June) for underpayment of taxes is 7% (tinyurl.com/mr49bmj4), and the rate is compounded daily. Importantly, if you receive a notice, "you will not be charged interest on the amount shown if you pay the amount owed in full on or before the 'pay by' date," according to the IRS Interest webpage (tinyurl.com/m58hbew4).
It is possible to have penalties waived in certain cases. "The IRS may abate your penalties for filing and paying late if you can show reasonable cause and that the failure wasn't due to willful neglect," quoting IRS Tax Topic 653 (tinyurl.com/mwzmpm3t). "If you're billed for penalty charges and you have reasonable cause for abatement of the penalty, send your explanation along with the bill ... or call [the IRS] at 800-829-1040 for assistance."
While the IRS webpage Penalty Relief (tinyurl.com/yuac7874) mentions using Form 843 (Claim for Refund and Request for Abatement) if your relief request is not approved over the phone, the IRS spokesperson explained that most often, Form 843 is not needed, adding, "This is especially true if you have a notice or bill in hand -- just respond to that notice in writing."
The Penalty Relief for Reasonable Cause page at tinyurl.com/2p9d2558 has what might (and might not) qualify as a valid reason for failing to file or pay a tax on time. It also details what supporting documentation should be included.
The IRS abated nearly $50.9 billion in civil penalties during fiscal year 2022, with $36.7 billion of the abatement related to individual and estate and trust income tax returns (tinyurl.com/mr3r5sby).
For more information about notices, read "Understanding Your IRS Notice or Letter" at tinyurl.com/2d99nm3y.
By the way, the IRS considers a mailed payment to be made on time if "the envelope is properly addressed, has enough postage, is postmarked, and is deposited in the mail by the due date" (tinyurl.com/29b44u2z). If you file late and pay late, "you don't get credit for any possible mailing delays. Your return is treated as filed and paid on the day we get it," according to the IRS spokesperson.
And, let me add two pieces of advice for the future. Consider creating an IRS online account at tinyurl.com/2pwrtepw to make and check on payments. And, it doesn't hurt to check your bank account two weeks after making a tax payment to confirm the payment cleared. You can also call the IRS at 800-829-1040 to see if "the payment has been credited to your tax account" (tinyurl.com/4v4tf5hj).