April 15th is approaching, and the IRS just announced that the interest rates it charges on past-due taxes will be increasing. Nobody likes to owe the IRS money, but it’s not an uncommon situation — even if you don’t realize it until you fill out your tax return. For these reasons, now is a good time to quickly review what interest and penalties could mean for you if you owe the IRS money.
IRS interest rates are going up
The IRS, which determines its interest rates quarterly, just announced a rate hike for the second quarter of 2018, beginning on April 1. The rate for underpayments and overpayments for individuals will be 5% annually compounded daily. Rates for corporations are also going up. If you owe the IRS $10,000, you can now expect to pay about $1.37 per day in interest charges while your debt is outstanding.
This is in addition to penalties you might owe
Keep in mind that the interest charged by the IRS is in addition to any penalties you are assessed for paying or filing late.
The penalty for paying your taxes late is 0.5% of the past-due balance per month or partial month, up to a maximum penalty of 25%.
On the other hand, the failure-to-file penalty is much worse — 10 times worse, to be specific. For each month or partial month you file your tax return after the deadline, you’ll be assessed a 5% penalty, up to the same 25% maximum.
An extension won’t help you avoid interest
As the April 17, 2018, tax deadline is approaching, it’s also important to mention that filing a tax extension does not excuse you from paying your entire tax liability by April 17th. . An extension simply gives you an additional six months to file your return — it does nothing to extend your payment deadline.
So, while a tax extension buys you more time to file your return, keep in mind that interest is charged retroactively to the April 17 tax deadline if it turns out that you owe the IRS money.
If you owe the IRS and have not filed back taxes, Give us a call. We are Middle Tennessee’s Tax Resolution Experts.