What are the penalties for late filing or late payment for businesses?

by | May 22, 2025 | Business Taxes, General Business Tax Filing

Here’s what HIVE AI had to say about “What are the penalties for late filing or late payment for businesses?”:

Penalties for Late Filing or Late Payment for Businesses

When businesses fail to meet their tax filing and payment obligations on time, they face several penalties. The primary penalties include a failure to timely file penalty (5 percent to 25 percent of the tax due depending on the duration of the delinquency) and a late payment penalty (1/2 of 1 percent per month, not to exceed 25 percent). IRS IRM 9.5.13 Civil Considerations

Failure to File Penalties

Late Filing of Business Income Tax Returns

A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a tax return required to be filed in 2025 that is more than 60 days late is the smaller of the tax due or $510. The penalty will not be imposed if the corporation can show that the failure to file on time was due to reasonable cause. IRS – Instruction 1120: Instructions for Form 1120, U.S. Corporation Income Tax Return

For other business entities, if you don’t file your return by the due date (including extensions), the penalty is usually 5% of the amount due for each month or part of a month your return is late, unless you have a reasonable explanation. If you have a reasonable explanation for filing late, include it with your return. The penalty can be as much as 25% of the tax due. The penalty is 15% per month, up to a maximum of 75%, if the failure to file is fraudulent. If your return is more than 60 days late, the minimum penalty will be $510 or the amount of any tax you owe, whichever is smaller. IRS – Instruction 1040-SS: Instructions for Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico)

The penalty for late filing, pursuant to Internal Revenue Code Section 6651(a)(1), is imposed if a return is not timely filed and amounts to 5 percent of the amount required to be shown as tax on the return for each month of delay, up to a maximum of 25 percent. Dawson U.S. Tax Court Opinions: Kevin Dean Chaffee

Reduction When Both Penalties Apply

When the failure to file and failure to pay penalties both apply with respect to the same month, the penalty for filing late is reduced by the amount of the penalty for paying late, except when the minimum penalty applies for filing late. IRS IRM 4.23.9 Employment Tax Penalty, Fraud, and Identity Theft Procedures

When both penalties apply, the late-filing penalty is reduced by the amount of the penalty for late payment. Therefore, the effective late-filing rate for the period in which both additions to tax apply (a period that would never exceed five months) is 4.5 percent per month. Dawson U.S. Tax Court Opinions: Elmer Jon Buckardt

Failure to Pay Penalties

A corporation that doesn’t pay the tax when due may generally be penalized 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. IRS – Instruction 1120: Instructions for Form 1120, U.S. Corporation Income Tax Return

If you pay your taxes late, the penalty is usually 1/2 of 1% of the unpaid amount for each month or part of a month the tax isn’t paid. The penalty can be as much as 25% of the unpaid amount. It applies to any unpaid tax on the return. This penalty is in addition to interest charges on late payments. IRS – Instruction 1040-SS: Instructions for Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico)

An organization that doesn’t pay the tax when due may generally have to pay a penalty of ½ of 1% of the unpaid tax for each month or part of a month the tax isn’t paid, up to a maximum of 25% of the unpaid tax. IRS – Instruction 1120-POL: Instructions for Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations

Failure to Deposit Taxes

For failure to deposit taxes, the penalty can be up to 10 percent of the underpayment. IRS IRM 9.5.13 Civil Considerations

Information Return Penalties

Late Filing of Information Returns

The Late Filing Penalty for information returns is tiered based on when the information returns were filed:

The penalty amounts for information returns are:

  • $30 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $150,000 per year ($50,000 for small businesses).
  • $50 per information return if you file after August 1 or you do not file required information returns; maximum penalty $250,000 per year ($100,000 for small businesses). Rev. Proc. 2005-49

The maximum penalty rates for information returns have increased over time:

  • TY 2010 through 2014: $100 per information return
  • TY 2015 through 2017: $260 per information return
  • TY 2018 through 2019: $270 per information return
  • TY 2020 through 2021: $280 per information return
  • TY 2022: $290 per information return
  • TY 2023: $310 per information return
  • TY 2024: $330 per information return IRS IRM 4.19.25 Information Return Penalty (IRP) Procedures

Intentional Disregard

If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $100 per information return with no maximum penalty. Rev. Proc. 2005-49

If one or more failures to file timely or to include correct information are due to intentional disregard of the requirement to file timely or to include correct information, then the $3,000,000 limitation will not apply, and the penalty will be $500 or, if greater, the statutory percentage of the amount that should have been reported. Tresuary Reg. 301.6721-1

Exempt Organization Penalties

For exempt organizations that file late, the penalty varies based on gross receipts:

  • For Forms 990, 990EZ, and 990PF, the penalty is $25 a day for each day your return is late, if your gross annual receipts are equal to or less than $1,274,000. The penalty may not be more than $12,500 or 5% of your gross annual receipts, whichever is less.
  • For organizations with gross annual receipts exceeding $1,274,000, the penalty is $125 a day for each day your return is late. The penalty may not be more than $63,500.
  • For all other forms, the penalty is $10 a day for each day your return is late. IRS – Notice 746: Information About Your Notice, Penalty and Interest

In the case of failure to file an exempt organization information return within the prescribed time, a penalty of $10 a day for each day the return is delinquent is assessed unless the failure to file the return within the prescribed time is shown to be due to reasonable cause and not neglect. Tresuary Reg. 601.104

Trust Fund Recovery Penalty

The trust fund recovery penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld are not collected or withheld, or these taxes are not paid. These taxes are generally reported on Forms 720, 941, 943, 944, or 945. The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible for collecting, accounting for, or paying over these taxes, and who acted willfully in not doing so. The penalty is equal to the full amount of the unpaid trust fund tax. IRS – Instruction 1120: Instructions for Form 1120, U.S. Corporation Income Tax Return

For failure to collect, account, or pay over a tax—or attempted evasion of the tax, the penalty is 100 percent of the tax required to be paid or to be collected on behalf of the government. IRS IRM 9.5.13 Civil Considerations

Fraud Penalty

The fraud penalty is 75 percent of the underpayment due to fraud. IRS IRM 9.5.13 Civil Considerations

Accuracy-Related Penalty

For negligence or disregard of rules or regulations, the accuracy-related penalty is 20 percent of the appropriate portion of underpayment due to negligence. IRS IRM 9.5.13 Civil Considerations

Foreign Information Reporting Penalties

Failure to file required returns on transfers to foreign trusts or report the required information carries a penalty of 35 percent of the gross reportable amount plus up to $10,000 for each 30 day period beyond 90 days after notice (for returns filed under 6048(b), a 5% penalty applies). IRS IRM 9.5.13 Civil Considerations

For failure to furnish information about foreign business entities:

  • The penalty is $10,000 for each annual accounting period with respect to which such failure exists.
  • If the failure continues for more than 90 days after the day on which the Secretary mails notice of such failure, an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which such failure continues applies. The increase in any penalty under this paragraph shall not exceed $50,000. IRC § 6038(b)

Interest on Penalties

The IRS will charge you interest on taxes not paid by their due date, even if an extension of time to file is granted. The IRS will also charge you interest on penalties imposed for failure to file, negligence, fraud, substantial or gross valuation misstatements, substantial understatements of tax, and reportable transaction understatements. Interest is charged on the penalty from the due date of the return (including extensions). IRS – Instruction 1040-SS: Instructions for Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico)

Reasonable Cause Exception

In the case of failure to pay or deposit taxes due within the prescribed time, penalties will not apply if the failure to pay or deposit the tax due within the prescribed time is shown to be due to reasonable cause and not neglect. Tresuary Reg. 601.104

No penalty shall be imposed on any failure which is shown to be due to reasonable cause and not willful neglect. IRC § 7519(f)

Extensions and Penalties

An extension of time for filing a return does not operate to extend the time for payment of the tax. If an extension of time to file a return is obtained, but no extension of time for payment of the tax is granted, interest will be due on the tax not paid by the due date and the estate will be subject to all applicable late payment penalties. Tresuary Reg. 20.6081-1

Disaster Relief

Any penalties for filing or paying late of affected taxpayers are computed using the disaster end date as the new “disaster due date” for determining the correct penalty. IRS IRM 20.1.2 Failure To File/Failure To Pay Penalties

Timely Filing Rule

Taxpayers meet the requirement to timely file if the form is properly addressed and mailed on or before the due date. IRS IRM 4.19.25 Information Return Penalty (IRP) Procedures

Conclusion

Business tax penalties can be substantial and accumulate quickly. The best approach is to file and pay on time. If you cannot file or pay on time, it’s important to:

  • File on time even if you cannot pay the full amount due (to avoid the larger failure-to-file penalty)
  • Pay as much as you can with your return to reduce penalties and interest
  • Consider requesting an installment agreement for any remaining balance
  • Document any reasonable cause that prevented timely filing or payment

If you have reasonable cause for failing to file or pay on time, you should document this thoroughly, as penalties may be abated in such circumstances.

Sources:

  • IRS IRM 9.5.13 Civil Considerations
  • IRS IRM 4.19.25 Information Return Penalty (IRP) Procedures
  • IRS IRM 4.23.9 Employment Tax Penalty, Fraud, and Identity Theft Procedures
  • IRS IRM 20.1.2 Failure To File/Failure To Pay Penalties
  • IRS Instructions for Form 1120, U.S. Corporation Income Tax Return
  • IRS Instructions for Form 1040-SS
  • Treasury Regulations
  • Internal Revenue Code sections

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