If tax was owed on April 18, 2016 and a payment of an estimate equal to or greater than the tax owed, penalties and interest will be charged by the IRS.

Generally, interest will accrue from the due date of the return until the date the tax is paid in full.  The interest rate is set every quarter and is equal to the federal short term interest rate plus 3%.   The IRS compound interest daily.

If the full amount of tax owed wasn’t paid on April 18th, the IRS will also charge .5% for each month or part of a month that the tax was owed up to 25% of the amount of unpaid tax.

When taxes are filed on time, the IRS offers installment agreements and will reduce the interest rate to .25%.

If the IRS issues a notice of intent to levy property, the .5% late penalty will increase to 1% 10 days after the notice is issued.

If tax is owed and a tax return is not filed, the IRS charges 5% of the tax owed for every month or part of a month the tax is unpaid up to a maximum of 25% of the tax owed.

If a return is filed over 60 days late, the minimum failure to file penalty is the lesser of $205 or 100% of the tax owed.

The IRS always applies payments to tax first, then penalties, then interest.

It’s always best to file and pay your taxes on time.  Generally, a loan can be secured from a bank or other lending institution at a lower interest rate than the combined IRS penalty and interest charges.  If you are self-employed, the best way to stay on top of your taxes is to make quarterly estimated payments throughout the year.