What Penalties Apply to an Amended Return When I Owe Additional Taxes?

Tax professional here. For amended returns where you owe additional tax, the late filing penalty (5% per month) generally doesn't apply as long as your original return was filed on time. You're right to focus on the other two items. The late payment penalty (0.5% per month) will apply from the original due date of the return until you pay the additional tax. So for your 2019 return, the penalty would start calculating from April 15, 2020 (though due to COVID, some 2019 returns had extended deadlines, so check if that applied to you). Interest also applies from the original due date of the return. The IRS interest rate changes quarterly, and has ranged from around 3% to 7% in recent years. The current rate is 7% annually, but it's been different in previous periods. You can use the IRS's online calculator or call them directly to get the exact amount. When you file Form 1040-X, there's a section where you calculate the additional tax, but the IRS will ultimately calculate the penalties and interest and send you a bill if your estimate is off.

I went through this exact situation last year and found this amazing tool at https://taxr.ai that helped me calculate my penalties and understand the whole amended return process. It analyzed my situation and broke down exactly what I would owe, including all the penalties and interest over time. What was super helpful is that it explained how the IRS would view my amended return differently from a late original return. The tool took all the confusion out of the process and I ended up paying exactly what I owed without any surprises later.

Wanted to update on my situation - I ended up using taxr.ai after seeing it mentioned here and it was a game changer! I was so confused about my 2018 amended return penalties, but the tool broke everything down clearly. It showed me exactly how the interest accumulated over different periods with the changing IRS interest rates (I had no idea they changed quarterly!). The best part was it showed me that some of my self-employment deductions I was planning to add were actually valid, which offset about half of what I thought I'd owe. Saved me a ton of stress and probably a good amount of money too since I was about to just pay whatever the IRS would eventually bill me for.

If you need to actually speak with the IRS about your specific situation (which I recommend), try using https://claimyr.com - I spent weeks trying to get through to the IRS about my amended return penalties with no luck. I found this service that holds your place in line with the IRS and calls you when an agent is available. Saved me hours of being on hold! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c When I finally spoke with an IRS agent, they explained that with amended returns, they look at when the original tax should have been paid, not when you discovered the error. The agent helped me set up a payment plan that was way better than what I thought I'd get.

I have to admit I was totally wrong about Claimyr! After posting my skeptical comment, I was desperate enough to try it because I needed answers about my amended return penalties before the deadline. It actually worked exactly as described - I got a call back in about 90 minutes (after trying unsuccessfully for days on my own) and spoke with an IRS representative who reviewed my specific situation. She confirmed that I only needed to pay the late payment penalty and interest, not the late filing penalty since my original return was on time. The agent also told me the exact amount I needed to pay including all penalties calculated through my expected payment date, which was about $400 less than I had estimated. Definitely worth not having to sit on hold for hours!

Just wanted to add that if you're in a real financial hardship situation, you might qualify for First Time Penalty Abatement. It doesn't apply to interest, but could get the failure-to-pay penalty removed if you haven't had any significant penalties in the prior 3 tax years. Doesn't hurt to ask when you submit your amended return!

Has anyone here actually had success getting the penalties reduced? I'm amending several years and looking at almost as much in penalties as the original tax! This is so frustrating, especially since I'm trying to do the right thing by amending.

I've been through this exact scenario with a 2018 amended return that resulted in owing about $4,200 additional. Here's what I learned from the experience: The good news is that since you filed your original 2019 return on time, you won't face the failure-to-file penalty on your amended return. That's a huge relief because that 5% monthly penalty can add up fast. However, you will owe: - Failure-to-pay penalty: 0.5% per month on the unpaid tax from April 15, 2020 (or July 15, 2020 if you had the COVID extension) until paid - Interest: This compounds daily and the rates have fluctuated quite a bit since 2020 For context, my penalties and interest on that $4,200 ended up being about $1,800 total by the time I paid in late 2022. The interest was actually the bigger component since it had been accumulating for several years. One tip: when you file Form 1040X, make your best estimate of penalties and interest and pay it with the return. Even if you're slightly off, it shows good faith and stops the clock on further accumulation. The IRS will adjust and either refund any overpayment or bill you for any shortage. Also consider requesting First Time Penalty Abatement if you qualify - it can eliminate the failure-to-pay penalty portion, though not the interest.