Why Did I Receive Penalties & Interest?

The deadline to file a federal individual income tax return and pay any tax owed for most people is April 15th. This is consistent for State and local agencies. If one or both of these are not done by the deadline there are a few types of penalties and interest that may be incurred. 

• Interest: Which accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily.
• Failure-to-Pay Penalty: If you file a return but don't pay all tax owed by the deadline, you will generally have to pay the failure-to-pay penalty. This penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25%, of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property.
• Failure-to-File Penalty: This penalty is incurred when you owe tax and don't file on time. The amount of this penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there's also a minimum penalty for late filing; it's the lesser of $485 (for tax returns required to be filed in 2024) or 100 percent of the tax owed.
• Underpayment of Estimated Tax Penalty: If you owed more than $1,000 in the previous tax year, you are required to pay quarterly estimated tax payments. This penalty is calculated by the underpayment amount, the period when the underpayment was due and underpaid, & the quarterly interest rates for underpayments. The IRS applies interest to the underpayment of estimated tax penalty.  

Keep in mind that filing your taxes and paying your taxes are different and can happen on separate dates. This may cause additional penalties and interest. 

When MB Tax Pro prepares your tax return after April 15th, we calculate penalties and interest through a certain date to give you an idea of the total amount due. This amount may change during processing and you may receive a letter. If this letter shows an increase on the amount of interest we calculated, typically this amount should be paid. 

For even more information on penalties & interest, click here.