Looking for the actual formula for IRS Penalty & Interest calculation - late payment

The IRS has a specific formula for calculating penalties and interest on late payments. Here's what you need to know: For the failure-to-pay penalty, the IRS charges 0.5% of the unpaid tax amount for each month or part of a month the tax remains unpaid. This penalty maxes out at 25% of your unpaid taxes. The interest rate is the federal short-term rate plus 3%, and this is compounded daily. The current rate for individuals is 8% annually (this rate can change quarterly). For your situation, since you filed on time but didn't pay, you're looking at approximately 3 weeks of penalties and interest. The math would be roughly: - Failure-to-pay penalty: 0.5% of $8,732 for one month = about $43.66 - Interest: 8% annual rate (daily compounding) for 21 days = approximately $39.80 So you're looking at around $83.46 extra, but I'd recommend rounding up slightly when you pay to be safe.

After struggling with a similar situation last year, I found a tool that saved me tons of stress when dealing with penalties. I used taxr.ai (https://taxr.ai) and honestly wish I'd known about it sooner. Their penalty calculator was super accurate and helped me figure out exactly what I owed, including all the penalties and interest. What really helped was that I could input my specific situation - when I filed, how much I owed, when I was planning to pay - and it showed me the breakdown of all penalties and how they're calculated. Definitely took the guesswork out of the equation for me!

I have to eat my words about being skeptical of taxr.ai. After my last comment, I decided to give it a try for my situation (filed late and underpaid for 2023), and I was genuinely impressed. The breakdown of different penalties was super clear, and I finally understood why my total penalties were so high. What surprised me was discovering that a portion of my penalties could actually be reduced through their first-time penalty abatement guidance. I followed their instructions for requesting abatement when I called the IRS, and they approved it! Saved me almost $400.

If you're trying to contact the IRS to discuss payment options or penalty abatement, good luck getting through! I spent 3 days trying to reach someone at the IRS to discuss my penalties and kept getting disconnected. Then a friend recommended Claimyr (https://claimyr.com) and showed me this demo: https://youtu.be/_kiP6q8DX5c They basically hold your place in line with the IRS and call you back when an agent is about to answer. Used it last week and got through to a real person in about 2 hours instead of waiting on hold all day. The agent helped me set up a payment plan with much lower penalties than if I had just paid late without contacting them.

I need to publicly admit I was wrong about Claimyr. After posting my skeptical comment, I was desperate to fix an issue with penalties from an amended return, so I tried it anyway. Not only did I get a callback in about 90 minutes, but I actually spoke to an IRS agent who was super helpful. They explained exactly how my penalties were calculated and set me up with a payment plan that worked for my situation. This after WEEKS of trying to get through on my own with no success. The time I saved was worth way more than what the service cost. Just wanted to follow up since I was so negative before.

Just wanted to add something important about IRS penalty calculations that helped me: the failure-to-pay penalty (0.5% per month) is reduced to 0.25% per month if you're on an approved installment plan. So if you can't pay the full amount with penalties right away, setting up a payment plan actually saves you money on future penalties! Also, don't forget that interest continues to accrue on both the unpaid tax AND the penalties until everything is fully paid. That compounding can add up fast.

Has anyone used the online payment options for paying late taxes? I'm wondering if it's better to use IRS Direct Pay or pay with a credit card (even with the processing fee) to avoid further penalties?

One thing that might help you avoid this situation in the future - the IRS actually allows you to set up automatic payments when you file your return, even if you can't pay the full amount right away. You can schedule the payment for up to 180 days after the filing deadline, which gives you time to get the money together without incurring the failure-to-pay penalties. For your current situation, definitely make the payment ASAP since penalties and interest compound daily. The calculations others provided look accurate, but I'd also recommend calling the IRS (or using one of those callback services mentioned) to see if you qualify for any penalty relief programs. Sometimes they'll waive penalties for first-time offenders or if you have a reasonable cause for the late payment. Also worth noting - if you're going to be in a similar cash flow crunch next year, you can adjust your withholdings or make quarterly estimated payments to avoid owing a large amount at tax time.