With tax season underway, some Americans file as early as possible to get their refunds more quickly. But those who wait too long without filing for an extension could find themselves on the receiving end of a different type of tab from the IRS.
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Taxpayers have been able to file their 2019 returns since the end of last month. This year’s tax deadline is Wednesday, April 15. Taxpayers that do not meet the deadline stand to face a number of penalties.
Here’s a look at some of the common penalties on the individual side:
Failure to file
If you don’t file your return, the penalty is 5 percent of the unpaid taxes for each month that a return is late. The penalty begins accruing the day after returns are due – up to a maximum of 25 percent of your unpaid taxes.
The amount is reduced by the failure to pay the penalty amount during a month where both penalties apply. The maximum penalty you’ll pay for both in any given month is 5 percent.
When a return is filed more than 60 days after the deadline, it is subject to a minimum late filing penalty that is the lesser of either 100 percent of the tax required to be shown on the return that was not paid on time, or a specific dollar amount that has been adjusted for inflation.
The penalty applies for a full month, even if it is less than 30 days late.
The IRS recommends filing your return, even if you cannot pay everything you owe by the due date.
Failure to pay
If you fail to pay your taxes by April 15, the penalty is 0.5 percent of the taxes not paid.
The penalty is weighed each month after the due date until the bill is paid or the levy reaches 25 percent of unpaid taxes.
Even if you request an extension, you are not exempt from paying your tax tab. You are liable for penalties if you don’t pay an estimate (at least 90 percent) of your tax liability by April 15.
Failure to pay proper estimated tax
This penalty applies to people who did not pay a sufficient amount in taxes throughout the year.
According to the IRS, penalties are calculated separately for each required installment, based on the number of days late, multiplied by the effective interest rate for the installment period. The penalty is applied to what you should have paid.
Failure to take required minimum distribution (RMD)
An RMD is a mandate that certain older individuals withdraw a calculated amount of money from their retirement accounts each year. It applies to most retirement accounts, including work plans like a 401(k) and traditional IRAs.
The amount you need to withdraw is calculated by dividing your account balance as of Dec. 31 by your life expectancy. The IRS has its own published life expectancy calculations.
The deadline for most people is Dec. 31.
However, those who reached the age of 70 1/2 during 2019 have until April 1 to withdraw their first RMD. But they would still have to meet the Dec. 31 deadline next year, which would require taking two RMDs within the year.
Failing to meet the deadline could result in the IRS penalizing retirees for as much as 50 percent of the amount they were supposed to withdraw.
There is some confusion after the passage of the SECURE Act – which took effect in January – raised the age at which individuals are required to take their RMD to 72. For individuals turning 70 1/2 this year, you are not expected to have to withdraw an RMD.