Taxpayers normally have until April 17, 2012, to file their 2011 tax returns and pay any tax due. Taxpayers requesting an extension of time to file have until October 15, 2012, to file their 2011 returns.
This year, certain unemployed and self-employed taxpayers may be eligible for a six-month grace period on failure-to-pay penalties. Penalty relief is available to two groups of taxpayers:
Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year. Self-employed individuals who experienced a 25-percent or greater reduction in business income in 2011 due to the economy.
The taxpayer’s 2011 calendar year balance must not exceed $50,000. Additionally, the taxpayer’s income must not exceed $200,000 if he or she files a joint return or $100,000 if he or she files as single or head of household.
The request for relief from the failure-to-pay penalty is only available for tax year 2011 and only if all taxes, interest and any other penalties are paid in full by October 15, 2012.
Taxpayers who satisfy the eligibility requirements will need to complete Form 1127A, Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship, which is available on the IRS website.
Generally, taxpayers who fail to pay taxes owed by the original due date are subject to a failure-to-pay penalty of 0.5 percent of the unpaid taxes for each month or part of a month after the due date that the taxes are not paid. The penalty can reach 25 percent of the unpaid taxes. Thus, under this program, taxpayers will have until October 15, 2012, to avoid the penalty.
The IRS is, however, legally required to continue to charge interest at the current annual rate of three percent on the unpaid tax liability. It does not have the authority to waive statutorily imposed interest. The IRS reminds taxpayers that the failure-to-file penalty remains in effect at 5 percent a month with a 25-percent cap.