Every year when you file your taxes, you’re required to pay the amount in full by April 15th (unless you file for an extension). However, if you don’t calculate your taxes properly, or if you forget about a source of income, you may file your taxes incorrectly. You may not give the IRS the money they’re due. When this happens, you may be sent a penalty charge notice in the mail.
A penalty charge notice is a letter from the IRS notifying you that a penalty has been assessed against you. While it can be scary to receive a notice like that from the IRS, keep reading to learn more about the penalty, and how you can handle it.
Types of Tax Penalties Charge Notices
There are many different tax penalties that you can be charged by the IRS and other state tax institutions, including the FTB, BOE, CDFTA, or EDD. A few of the most common penalties include:
- Failure to Pay Penalty: You incur this penalty when you pay after April 15th (with no extension). The cost is .5% of the taxes for each month they go unpaid, with a maximum of a 25% penalty.
- Failure to File Penalty: You must file your taxes, even if you can’t pay them in full. If you don’t file your taxes at all, then the IRS can charge you a penalty of 5% of the unpaid taxes every month you don’t pay.
- Bad Check Penalty: If you write the IRS a check that bounces, they’ll charge you 2% of the check amount, or $25, whichever costs more.
- Underpayment of Estimated Tax by Individuals: If you’re a freelancer and you don’t pay enough money in estimated tax throughout the year, then the IRS calculates a penalty based on the amount you underpaid, how long it went unpaid, and the interest rates published quarterly.
What’s Included in a Penalty Charge Notice
Penalty charge notices are delivered through the mail, not online. When you get your notice of penalty charge, it will include a description of the penalty incurred, a calculation of how much this penalty will cost you, and what you did wrong that caused the penalty in the first place.
While these can be frustrating to receive, the IRS assesses these penalties without notifying you first. There’s no audit to help you plead your case, or chance for you to file a protest. As soon as you receive your penalty charge notice, you need to respond to the IRS ASAP. If you don’t respond, or pay what’s due, then the IRS will start sending you collection notices.
How to Respond to a Penalty Charge Notice
If you can’t pay the penalty or tax you owe in full, you’ll need to respond to the notice of penalty charge in writing, and request penalty abatement. After the penalties have been assessed, and you’ve received the notice, you can respond in writing to the notice or call the IRS. You must write to the IRS (or any of the state taxing agencies if that’s who charged you) within 30 days, and submit an administrative claim.
When you send the letter, or call the IRS responding to your penalty charge notice, you must include the following information:
- The notice that the IRS sent you
- The penalty charge that was incurred
- The reasons why you believe the IRS should remove the penalty.
Certain penalties require more detailed instructions. If your penalty states further instructions, follow them to the letter.
If You Have Any Questions, Contact Mindy Meigs
You must ensure that your reasons to remove the penalty will be accepted by the IRS and other state tax agencies. If you’re feeling uneasy about your penalty charge notice, contact tax attorney Mindy Meigs to help you write your response letter today.