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Taxpayer Penalty – Late Income Tax Payment

Course: Income Tax Planning
Lesson 1: Introduction to Taxation

Student Question:

Hi Dan-

I have a question on Review Exercise #1 (below)

Review Exercise
Shane’s tax return was due on April 15. He filed on April 15 but did not pay his $125 tax bill until May 11. How much, if any, will Shane be penalized?

Answer
Shane will only be penalized for paying late. And because he paid in less than 60 days, he is not subject to a minimum amount. Shane’s penalty: .005 x 2 x 125 = $1.25

Why is the calculation based on two months and not 1 month late?

Thanks,
Anna

Instructor Response:

Hi Anna-

Yeah, that can be tricky.  You would think if you pay before May 15, you paid within 1 month. The IRS sees it differently. Any month in which you have a payment outstanding, it counts. So if you pay on Aril 16th, you are 1 month late. If you pay on April 30th, you are 1 month late.  If you pay on May 1st, you are two months late. If you pay on May 31st, you are two months late.

So just think about the actual calendar months. If any 1 day of that month a payment is not with the IRS, that counts as an entire month. Hope that helps!  Let me know if you have any other questions.

Dan