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The penalty for failure to file a tax due return by the due date is 10 percent of the tax due or $20, whichever is greater. A second penalty may be assessed if the tax balance remains unpaid 90 days after the original due date. The second penalty is 10 percent of the tax balance due or $20, whichever is greater.
If you file your return timely but do not pay the tax due, only one penalty for failure to pay timely will be assessed.
In addition to the penalties described above, a penalty of $50 will be assessed for each W-2 that is not filed with the reconciliation return, up to $1,000.
The interest rate for calendar year 2007 is 7 percent and is applied to the tax balance due.
The rest of this discussion will help you understand the impact of penalty and interest. The example is for a taxpayer who had a tax due return and filed late in 2007.
The amount of withholding tax due for the second quarter April-June 2007 (due Aug 1, 2007 ) is $5,000 and the return is filed late. If the return is filed September 1, 2007 with a $500 payment and the business owner continues to pay $500 each month, how much penalty and interest would be paid?
Penalty: The late filing penalty is $20 or 10% of the unpaid tax, whichever is greater. For this example the penalty is $500 ($5,000 x .10 = $500).
Interest: The interest rate is 7 percent and is calculated from the due date of the return. In this example, the payment was made September 1, 200 7 (31 days after the due date). Interest can be calculated using this formula:
| Amount Due x Days x Rate | = Interest Due |
365 |
Amount due = The amount of tax due that is unpaid.
Days = The number of calendar days from the due date of the return.
Rate = The interest rate for 2007 is 7 percent. The rate is subject to change every year and is effective on January 1. You may verify the interest rate on the Tax Commission's website (http://tax.utah.gov/taxes/penaltyinterest.html) or by calling (801) 297-2200.
| $5000 x 31 x .07 | = $29.73 |
365 |
The total amount due plus penalty and interest would be $ 5,529.73
When a return is filed and tax is paid late, payments are applied first to penalty, second to interest and then the tax.
You need to understand this very important concept when paying installments on a balance due. If you make an initial payment of $500 in our example above, the full amount of the first payment would go to penalty. Your new balance due would then be $ 5,029.73 (this is the tax due, plus the 31 days interest).
If you wait another 30 days to make the second $500 payment, the interest will now be $ 58.50 ($ 29.73 + $ 28.77 ).
The second $500 payment would be applied to interest first. The remaining amount would be applied to the $5,000 tax leaving a balance due of $ 4,558.50.
| $5000 x 30 x .07 | = $28.77 |
365 |
If the third payment is made 31 days later (91 days after the due date), a second penalty would be assessed. The penalty would be $ 455.85 ($ 4,558.50 x .10 = $ 455.85 ), which is 10 percent of the unpaid tax.
| $4558.50 x 31 x .07 | = $27.10 |
365 |
You can now see the financial impact. The taxpayer has made three payments totaling $1,500 and only $ 458.55 went to the original tax due. No additional penalties will be assessed, but interest will continue to accrue on the unpaid balance until it is paid in full.
Note: Delinquent accounts may also be subject to collection and legal fees.