Calculating Taxpayer Late Payment and Filing Penalties

Course: Income Tax Planning
Lesson 1: Introduction to Taxation

Student Question:

Hi

How is the answer to question #5 (below) $810?

Jerry’s taxes were due April 15th. He filed his return in October of the same year and paid his $3,000 two months later. Would Jerry be subject to a penalty? How much?

No. Jerry is not subject to a penalty because he paid within one year.
Yes. Jerry’s penalty would be $810.
Yes. Jerry’s penalty would be $960.
Yes. Jerry’s penalty would be $1,050.

I calculated $780
(4.5%)(5 months)($3,000) = $675
(.5%)(7 months)($3,000) = $105
$675 + $105 = $780

Pablo

Instructor Response:

Hi Pablo-

These can be confusing at times.  The calculation is below.

He pays a 5% per month combined penalty (failure to file + failure to pay) for the first 5 months

  • April through August
  • 25% x 3000 = $750

The failure to file penalty stops in August, but he must pay the failure to pay penalty of .5% per month for 4 months.

  • Sept – Dec
  • .5% x 4 = 2%
  • 2% x 3000 = $60

If we combine the two penalties, it totals $810.

Kind regards,
Bruce
Posted in Student Question

About Bruce Starks, CPA, CFP®