Penalties For Federal Income Tax Mistakes

Federal income tax mistakes can result in a variety of penalties for not following stipulated rules and regulations regarding the highly regulated field of taxation. Penalties are assessed by the applicable taxing authority. In the United States, this authority is the Internal Revenue Service (IRS). Be aware that whenever you are assessed penalties, interest will also be assessed. It is best to keep current on required tax laws to protect your financial affairs.

Late Filing

You need to submit your income tax return by the due date as stipulated by the IRS. For instance, for individual taxpayers this date is April 15th. According to the Internal Revenue Service (IRS), if you owe tax and do not file your applicable income tax return by its due date, you will be assessed a penalty. This penalty is known as a late-filing penalty. The amount is usually 5 percent of the tax owed for each month "or part of a month that your return is late, up to five months," states the IRS. If your return is filed later than 60 days after its due date, the minimum late-filing penalty will be the smaller of the current effective penalty amount or 100 percent of the tax owed, reports income tax preparation expert J.K. Lasser.

Late Payment

Even if you file your income tax return by its due date, you will be assessed a penalty if you pay the improper amount of taxes with your return, says J.K. Lasser. Known as a late payment penalty, this amount is typically "one-half of one percent of the tax owed for each month, or part of a month" in which the tax remains unpaid after the due date. You will pay this penalty until the tax is paid in full, leaving you a zero tax balance. If you do not pay the penalty, the maximum penalty of 25 percent will be applied, according to the IRS. If the IRS has issued a notice of intent to levy on this amount, and you have not paid the tax within 10 days from the date of the levy notice, the late-payment penalty will increase form one-half of one percent to one percent.

If you file your return on time, but are involved in installment payments for back taxes, the IRS states that the late-payment penalty of one-half of one percent rate will decrease to one-quarter percent for any month in which an installment agreement is in effect.

Underpayment of Estimated Taxes

Income tax, states the IRS, "is a pay-as-you-go tax, which means that tax must be paid as you earn or receive your income during the year." This is done through withholding taxes from your paychecks or by paying your estimated taxes periodically throughout the year. Estimated taxes are generally paid in four quarterly payments in order to avoid any penalties. If your income is received in uneven amounts throughout the year (making it difficult to estimate), the IRS states you may avoid or lower penalties by annualizing your income. IRS Publication 505 contains more information on estimated taxes and applicable penalties.