Interest/late payment penalty

[carolgb22]

If I filed an extension and I owe taxes, what is the interest rate charged or late payment penalty?

Does turbo tax include it in the calculation?

[marctu]

The failure to pay penalty applies if you don’t pay the tax when due.  The failure to pay penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty won’t exceed 25% of your unpaid taxes.

The IRS charges interest on penalties as well.  The date from which they begin to charge interest on the failure to pay would be the date that that the tax return was due, which in this case is April 15, 2024.  The current underpayment rate, which has been the same for Quarter 2 and 3, and 4, which begins October 1, 2024 is 8%.

Turbo Tax will not calculate the failure to pay penalty, and as a consequence will not calculate the interest.  The IRS most likely will send you a bill after the tax return is processed.  

Thank you for the opportunity to answer your questions @carolgb22 

All the best,

Marc T.

TurboTax Live Tax Expert

[LoraineG]

In addition to the previous explanation, here's some resources where you can read more regarding the penalties:

https://www.irs.gov/payments/failure-to-pay-penalty

https://www.irs.gov/payments/interest

[carolgb22]

Should I attempt to calculate the penalty amount and send it to avoid any additional charges?

[marctu]

It could not hurt to do so.  The failure to pay penalty is relatively easy, since it accrues as of the beginning of the next month.  So the first month is April 16 - May 15th, and so on and so forth.  The interest is a bit more complicated, and oftentimes the IRS calculation is beneficial to the taxpayer, in my experience. 

Also, you could potentially receive a First Time Abate or other administrative waiver

The failure to pay would qualify of the First Time Abate.  This comes from the IRS link above:

How to qualify for First Time Abate

You may qualify for First Time Abate for a penalty if you have a history of good tax compliance.

History of good tax compliance

You are considered having a good tax compliance history if you:

• Filed the same return type, if required, for the past 3 tax years before the tax year you received the penalty.

• Didn't receive any penalties during the prior 3 years, or any penalty was removed for an acceptable reason other than First Time Abate

Example: You request First Time Abate for a Failure to Pay Penalty on your 2022 tax return. You don't have any unresolved penalties on tax returns for 2019, 2020 and 2021 and didn't get First Time Abate relief. Based on this information, you have a good history of compliance.

Thank you for the opportunity to answer your questions @carolgb22 

All the best,

Marc T.

TurboTax Live Tax Expert

[Stsxoz]

You mentioned "Turbo Tax will not calculate the failure to pay penalty", however, it calculates a penalty and reports in line 38. Is this not the failure to pay penalty?

[marctu]

For visibility this is Form 1040, and  Line 38 specifically says as follows: "Estimated tax penalty".  The TurboTax Program will calculate the Estimated tax penalty, but it will not calculate the failure to pay penalty that the original question was regarding.

Thank you for the follow up question @Stsxoz  

All the best,

Marc A. Tufaro

Turbo Tax Expert

27 Years of Assisting Clients