Calculating Late Filing/Paying Penalties

Course: Income Tax Planning
Lesson 1: Introduction to Taxation

Student Question:

For this question, could you send me the math behind finding the answer?  I want a better understanding of how the penalty was assessed.

Thank Andrew

Review Exercise:

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 (on December 30th). Would Jerry be subject to a penalty? How much?


Instructor Response:

Hi Andrew,

Here’s how the penalty would be calculated:

Failure to file:

You are correct.  Whenever the failure to file penalty and the failure to pay penalty run concurrently, the failure to file penalty is reduced to 4.5%/month.  The maximum number of months that the failure to file penalty may be assessed is generally 5 months. In this case the five months are the months ending May 15, June 15, July 15, August 15, and Sept 15.

5 months x 4.5% per month = $675

Failure to pay:

The failure to file penalty remains at .5% when the failure to pay and failure to file penalties run concurrently.  Penalties are assessed for each full month or fraction thereof.

May 15 through December 15 = 8 penalty months 

December 16 through December 30 = 1 penalty month

9 months x .5% per month = $135
Total penalty and interest = $810

Onward and Upward,

Bruce