Every taxpayer is supposed to file their income tax returns and make payments on time. Failure to file returns or pay taxes can lead to a tax penalty, which is mostly 0.25% of the taxes you owe for each month your tax remains unpaid. The maximum you are charged is 25% of the taxable amount. The percentage of a penalty and how much you owe after the interest and penalty is charged depends on how long you didn’t pay your tax and the total taxable amount you owe. There are some exceptions, though.
At times, you are unable to clear dues simply because of a financial crisis at home, or you face circumstances that are beyond your control, such as the death of a beloved person or losing a job. You get a detailed notice from the IRS, which warns you about the deadline you have missed for the tax filing and how much penalty is charged.
If you don’t have a good reason for not filing or paying your income tax returns on time, you have to pay the due amount with penalty or interest (if applied). However, the IRS is willing to lift the penalty and interest if you were unable to pay taxes for reasons that you couldn’t control. This will work only if you comply with all tax regulations but can’t pay taxes for a valid reason. To prevent a penalty, you need to read the notice carefully. Verify that the information is correct. Then, you have to take action immediately. If you are able to resolve the issue for which you got penalized, the IRS might lift the penalty.
Requesting Tax Penalty Waiver
You will see a toll-free number on the top right corner of the IRS’s notice. If you want to request a penalty waiver, you can contact them directly over the call. You need these things when requesting a penalty waiver:
1. The notice you got from the IRS
2. Type of penalty you’d like to be relieved (note that there are certain types of penalties that can be relieved).
3. Explain the reason you want the penalty to be waived.
Some penalties can be removed over the call, and if you are eligible for a waiver, the IRS will lift the penalty immediately. However, if your request is not heard or considered on the call, you may have to fill the Form 843 requesting an interest or penalty abatement.
What Happens to the Interest?
Interest is applied to the tax penalty that’s not paid by the deadline. The interest keeps increasing until you pay the taxes you owe, with the penalty and the interest amount in full. It’s obvious that if the IRS has waived your tax penalty, the interest will also be removed. Chances are your deadline for the tax payment will be extended. You can expect an interest relief if your penalty is waived.
Now, the question is, what if the IRS rejects your request for a penalty waiver? If your request is not approved for any reason, you will get another notice from the IRS stating the rejection of your request. Here’s what you can do if that happens.
Penalty Appeal
You can request an “appeal” if the IRS rejects to remove the penalty. However, this needs to be done within 30 days of getting a penalty rejection letter. For more information about the deadline, check the penalty waiver rejection notice. Here are the conditions you must meet to be considered eligible for requesting an appeal:
1. You have received a letter that IRS has charged you with a failure to file or failure to pay a penalty.
2. You have proof of the written request you sent the IRS asking to lift the penalty
3. You got a written letter from the IRS, which shows your request has been rejected
This will give you the right to appeal. IRS will consider your penalty waiver request if there’s the death of a family member, serious illness, casualty, or a business loss due to a natural disaster. Make sure you call the IRS immediately if the penalty notice is mistakenly sent to you or there’s incorrect information in it. Hope it helps.
Also Read- How Is Tax Penalty Calculated