What kind of penalties and interest will I be charged for paying and filing my taxes late?

Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.

For current interest rates, go to News Releases and Fact Sheets and find the most recent Internal Revenue release entitled Quarterly Interest Rates.

In addition, if you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent. However, you will not have to pay the penalty if you can show reasonable cause for the failure. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.

Beginning January 1, 2000, if you filed a timely return and are paying your tax pursuant to an installment agreement, the penalty is one-quarter of one percent for each month, or part of a month, that the installment agreement is in effect.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause. The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%. The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax and any timely payments made with the return. After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid. Thus, the total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed. Also, if your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $100 or 100% of the tax required to be shown on the return.

Also, refer to Tax Topic 653, IRS Notices and Bills and Penalty and Interest Charges.

What is meant by "no tax liability" in the exceptions to the estimated tax penalty?

You do not have to pay estimated tax for 2004 if you meet all three of the following conditions.

1. You had no tax liability for 2003.

2. You were a U.S. citizen or resident for the whole year.

3. Your 2003 tax year covered a 12-month period.

You had no tax liability for 2003 if your total tax was zero or you did not have to file an income tax return.

Total tax for 2003. Your 2003 total tax on Form 1040 (PDF) is the amount on line 60 reduced by the total of the amounts on line 56, 63, and 65, any credit from Form 4136 (PDF) included on line 67, any recapture of a federal mortgage subsidy and any uncollected social security, Medicare, or railroad retirement tax included on line 60, and any tax on excess contributions to IRAs and medical savings accounts, and on excess accumulations in qualified retirement plans from Forms 5329 included on line 57.

On Form 1040A (PDF), it is line 38 reduced by the amount on line 41 and 42. On Form 1040EZ (PDF), it is line 10 reduced by line 8.

For additional information on this topic refer to Form 1040-ES (PDF), Estimated Tax for Individuals , and Publication 505, Tax Withholding and Estimated Tax .