Sunday, April 20, 2008

Penalty For Underpayment

Interest compound daily, is chargd on any unpaid tax from the due date of the return unil th date of payment. The interest rate is the federal short-term rate plus 3 %. Thr rate is determined every three months.

In addition, if you filed on time but didn't pay on time, you gernerally have to pay a late payment penalty of one-half of one percent of the tax (0.5%) owed for eachs month, that the tax remains unpaid after the due date, not execeeding 25% . Howevr, you will not have to pay the penalty if you can show reasonable cause for the failure. The one half of one percent rate increases to one percent if the tax remains unpaid after several bills have ben sent and the IRS issues a notice of intent to levy.

Beginning January 1,2000, if you file a timely return and are paying your tax pursuant to an installmnt agreement, the penalty is one-quarter of one percent for each month, or part of a month, that the installment agreement is in effect.

If you did not file on time and tou ow tax, you may own an additional penaly for failur to file unless you can show reasnabl cause. Th combind penalty is 5 percent (4.5% late filing, 0.5% late paymnt) for each month, or part of the month, that your return was late, up to 25%. The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withhholding and estimated tax and any timely payment smad with the return. After five months, if you still have not paid, the 0.5 % failure to pay penalty contiunes to run up to 25%, until the tax is paid.

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