PORTIA:
This is Portia Bingham. I’m talking with Beth Elfrey about what can happen when you don’t file or pay on time.

Beth, why is it so important to file tax returns by the due date?

BETH:
Two words: penalties, and interest. You can avoid them both by filing on time. Even if you owe tax and can’t pay in full, it’s better to file on time and pay as much as you can. That will help keep the charges down by eliminating the Failure to File penalty.

PORTIA:
What is the penalty for Failure to File?

BETH:
This late-filing penalty starts out at 5% for each month the tax return is late, up to a total maximum penalty of 25%. It’s based on the amount of tax you owe. So if it looks like you’re not going to be able to file your return by the due date, file an extension. That may reduce -- or even eliminate it. Be mindful that filing an extension can postpone the filing due date, but not the date to pay your balance. You should still try to pay as much as you can by the original due date to minimize the late payment penalty.

PORTIA:
What are penalties for late payment?

BETH:
The Failure to Pay penalty is also based on the amount of tax you owe. It’s one-half of one percent for each month the tax is not paid. It can’t exceed 25% of the total amount due. And when failure to file and failure to pay penalties apply at the same time, the maximum combined penalties for the first five months is 25%. The late payment penalty is calculated from the original payment deadline, generally April 15 for a Form 1040, until the balance due is paid in full.

PORTIA:
How are interest charges factored in?

BETH:
Interest is calculated based on how much tax you owe, and for each day it’s not paid in full. The rates are determined every three months and can vary based on type of tax, such as whether they’re individual or business tax liabilities. Current rates are on IRS.gov/.

PORTIA:
Does the IRS ever abate penalties and interest charges?

BETH:
The penalties for filing and paying late may be abated if you have reasonable cause. Generally, interest charges may not be abated, and continue to accrue until all assessed tax, penalties and interest are paid in full. The law does provides exceptions for allowing abatement or suspension of interest. Information about abatement is also on IRS.gov/.

PORTIA:
What if you owe more than you can pay?

BETH:
If you get a bill from the IRS, you are expected to promptly pay the tax owed, including any penalties and interest. It is often in your best interest to use a credit card or get a loan and pay the bill in full rather than make installment payments to the IRS. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the IRS.

PORTIA:
Tell us where to find more information.

BETH:
For more information about payment options, including installment and online payment agreements, visit IRS.gov/. Look for Publication 594, The IRS Collection Process, and Publication 966, Electronic Choices to Pay All Your Federal Taxes.

PORTIA:
Thank you, Beth. I’ve been talking with Beth Elfrey of the IRS. This is Portia Bingham.