Late Filing vs. Late Payment Penalties: Which Costs Florida Taxpayers More

Here is a number that should change your behavior: the failure to file penalty is 5% per month. The failure to pay penalty is 0.5% per month. Filing late costs you ten times more than paying late. If you cannot pay your taxes, file the return anyway.

The Math

The failure to file penalty under IRC 6651(a)(1) is 5% of the unpaid tax for each month the return is late, up to a maximum of 25%. The failure to pay penalty under IRC 6651(a)(2) is 0.5% per month, also up to 25%. When both apply simultaneously, the filing penalty is reduced by the payment penalty, but the combined effect is still devastating.

On a $50,000 tax balance, the failure to file penalty alone maxes out at $12,500. The failure to pay penalty on the same balance maxes out at $12,500, but it takes 50 months to get there instead of 5. File the return. Always file the return.

Penalty Abatement Is Available

If you have reasonable cause for late filing or late payment, the IRS can abate the penalties. Reasonable cause includes serious illness, death of a family member, natural disasters, fire or casualty, and reliance on professional advice. First-time abatement is also available if you have a clean compliance history for the prior three years.

The Bottom Line

If you owe taxes and cannot pay, file the return on time and request an installment agreement. You avoid the 5% monthly filing penalty and spread the payments over time. This is not complicated advice. It is the most basic thing a taxpayer can do to protect themselves.