Victoria’s 2021 tax return was due on April 15, 2022, but she did not file it until June 12, 2022. Victoria did not file an extension. The tax due on the tax return when filed was $8,800. In 2021, Victoria paid in $12,900 through withholding. Her 2020 tax liability was $12,100. Victoria’s AGl for 2021 is less than $150,000. How much penalty will Victoria have to pay (disregard interest)?
Penalty to be paid=
Victoria’s failure to file her 2021 tax return on time has triggered a penalty, as she missed the April 15, 2022 deadline and did not request an extension. To determine the penalty amount, we can utilize the IRS guidelines.
The IRS imposes two types of penalties in situations like this: a failure-to-file penalty and a failure-to-pay penalty. Let’s break down these penalties for Victoria’s case.
Failure-to-File Penalty: This penalty is applied when a taxpayer doesn’t file their tax return by the due date, which in Victoria’s case is April 15, 2022. The penalty is generally 5% of the unpaid tax for each month or part of a month that the return is late, up to a maximum of 25%.
Victoria filed her return 58 days late (June 12, 2022, minus April 15, 2022). So, she incurs a 5% penalty for each of these months, totaling 10% (2 months * 5%).
Failure-to-Pay Penalty: This penalty is applied when a taxpayer doesn’t pay the full amount of taxes owed by the due date. The penalty is 0.5% of the unpaid tax for each month or part of a month that the tax remains unpaid, up to a maximum of 25%.
Victoria’s tax liability was $8,800, and she paid $12,900 through withholding. This means she overpaid her taxes by $4,100 ($12,900 – $8,800). Therefore, she does not owe any additional tax, and there is no failure-to-pay penalty.
Now, let’s calculate the failure-to-file penalty:
Penalty = 10% of the unpaid tax Penalty = 10% of ($8,800 – $12,900) Penalty = 10% of (-$4,100) Penalty = -$410
The penalty is a negative amount because Victoria overpaid her taxes, and there is no additional tax due. In this case, Victoria will not have to pay any failure-to-file penalty, disregarding interest.
It’s important to note that this calculation disregards interest and assumes that Victoria has no other outstanding tax issues. Additionally, if Victoria is entitled to a refund, she may not face any penalties or interest as her tax liability has already been covered by her withholding. It’s always advisable to consult with a tax professional for precise guidance tailored to individual situations.
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