The law imposes penalties to ensure that all taxpayers pay their taxes. When you fail to file a required tax return, make timely tax payment or deposits, or willfully neglect to pay your taxes, the Government may impose certain financial penalties against you. If you underpay your tax due to fraud, you may be subject to a civil fraud penalty. In certain cases, you may be subject to criminal prosecution.
This document provides a brief overview of the most common types of penalties imposed. It is not intended to be inclusive of all penalties assessable by the Federal Government. This information is given to you to help reduce the likelihood of your incurring such liabilities. We hope this information will be of assistance to you.
Failure to File (FF) Penalty
Under present law, if you fail to timely file your tax return you may have to pay a penalty equal to 5% of the tax not paid by the due date for each month or part of a month that the return is late. This penalty cannot be more than 25% of the tax.
If you pay your taxes by Electronic Fund Transfer, you are still responsible for the timely filing of your tax return.
Failure to Pay (FP) Penalty
If you do not timely pay your taxes, you may have to pay a penalty of 1/2 of 1% of your unpaid taxes for each month or part of a month after the due date that the tax is not paid. This penalty cannot be more than 25% of your unpaid tax. If a penalty for FF and a penalty for FP both apply for the same month, the amount of the penalty for failure to file for that month is reduced by the amount of the penalty for failure to pay tax shown on a return.
Failure to Deposit (FTD) Penalty
Regulations require certain taxes be paid using deposits. The FTD Penalty is charged for failure to deposit correctly. The three components of a correct deposit are that it is made timely, in the correct amount, and in the correct manner. Failure to comply with any of these components may invoke the FTD Penalty. Deposits are due on or before the deposit due date. The penalty rate ranges from 2% to 15% of the underpayment depending on the number of days a deposit is late.
Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment.