Filing tax returns on time is crucial to avoid penalties and interest charges. Both the Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) impose penalties for late filing or failure to file. Here’s what you need to know for 2025.
Federal Penalties
- Failure-to-File Penalty: If you don’t file your federal tax return by the due date, the IRS imposes a penalty of 5% of the unpaid taxes for each month (or part of a month) that the return is late, up to a maximum of 25%. If your return is more than 60 days late, the minimum penalty is $525 or 100% of the unpaid tax, whichever is less. Source: IRS – Failure to File Penalty
- Failure-to-Pay Penalty: If you file your return but don’t pay the taxes owed by the due date, the IRS charges a penalty of 0.5% of the unpaid taxes for each month (or part of a month) following the due date, up to a maximum of 25%. Source: IRS – Penalties
California State Penalties
- Late Filing Penalty: The FTB imposes a penalty of 5% of the tax due after the due date, plus an additional 0.5% for each month (or part of a month) the return is late, up to a maximum of 25%. The minimum penalty is $135 or 100% of the tax due, whichever is less. Source: FTB – Penalty Reference Chart
- Late Payment Penalty: If you don’t pay the tax owed by the original due date, the FTB charges a penalty of 5% of the unpaid tax, plus 0.5% for each month (or part of a month) the tax remains unpaid, up to a maximum of 25%. Source: FTB – Penalties and Interest
Avoiding Penalties
- File on Time: Even if you can’t pay the full amount owed, filing your return on time can help you avoid the larger failure-to-file penalty. Source: IRS – Filing Past Due Tax Returns
- Pay as Much as You Can: Paying any amount toward your tax bill reduces the amount of interest and penalties you’ll owe.
- Request an Extension: If you need more time to file, you can request an extension. However, an extension to file is not an extension to pay. Source: IRS – Penalties
Penalty Abatement
Both the IRS and FTB offer options for penalty relief:
- First-Time Penalty Abatement: If you’ve generally been compliant and it’s your first penalty, you may qualify for a one-time abatement. Source: FTB – One-Time Penalty Abatement
- Reasonable Cause: If you have a valid reason for not filing or paying on time, such as a natural disaster or serious illness, you can request penalty relief based on reasonable cause. Source: IRS – Penalties
Understanding these penalties and how to avoid them can help you stay compliant and minimize additional costs. If you’re facing penalties, consider reaching out to a tax professional to explore your options for relief.
