Penalties for a Mistake on Federal Taxes

by Steve Lander
E-filing may save you from making math errors.

Believe it or not, the IRS knows that taxes are complicated and it understands that people make mistakes. As such, you probably aren't going to go to jail if you make one. This doesn't mean that you won't pay penalties for your errors, however.

Simple Mistakes

If you make a simple mistake, like adding up $111 and $222 of already-paid taxes and coming up with $1.333 because you added an extra "1," the IRS likely will catch it and send you a bill. The penalties for failing to pay the required amount of taxes -- which apply here because you said you paid $1,000 more than you actually did, making you fail to pay $1,000 in taxes -- are one-half of one percent per month, plus interest. The penalty is capped at 25 percent. If the mistake is in the IRS's favor, there won't be any penalties.

Missing the Filing Deadline

If you miss the April 15 filing deadline, the penalties are more severe. The failure-to-file penalty is five percent per month, plus interest. It also is capped at 25 percent. You could get hit with this penalty even if you send in your return, too. If you forget to sign the return, the IRS treats it as if you never sent it in and hits you with the failure-to-file penalty.

Accuracy Penalties

If your tax return mistakes go beyond simple math errors, you could be subject to an additional flat 20 percent penalty. The IRS levies this penalty if it feels you significantly underpaid your taxes. This can happen if you paid 10 percent or more less than you should have, or $5,000 less than owed -- whichever is more. You also can get hit with a 20 percent penalty if you ignore the IRS's rules or don't keep your own adequate records. When the IRS thinks you've actively committed tax fraud, it increases the penalty to 75 percent.

Fixing Mistakes

If you make a serious mistake in filing your taxes -- like forgetting to report income or mistakenly claiming a deduction that you shouldn't have taken -- you can come clean with the IRS by filing a Form 1040X amended tax return. You have three years to file a 1040X, and you will have to pay penalties if you didn't pay enough taxes on your original return. You also can file a 1040X to get a refund if you originally paid too much tax because you made a mistake.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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