Payments and Penalties

If your lender agrees with a restructuring, workout that reduces the principal of your debt, the debt reduction is considered cancellation of debt and reportable as other income on Form 1040 line 21 and you may claim the principal residence exclusion.

Debt cancelled in a Title 11 bankruptcy case is not includable in your gross income if the cancellation is granted by the court or under a plan approved by the court. Certain losses, credits and basis of property must be reduced by the amounts excluded by cancellation of debt.

Interest is charged on any unpaid tax due from the due date of your tax return (usually April 15) until the date of payment. The interest rate is determined every 3 months. There are separate late filing and late paying penalties. If you file on time but do not pay on time, you will generally have to pay a penalty of one half of 1% of the unpaid tax due for each month or part of a month the tax remains unpaid. If you owe tax and don't file on time, the penalty for not filing on time will be separately calculated.

A tax return delivered to the IRS by U.S. mail after the due date is considered timely filed if the return was postmarked on or before the due date of the return. This rule includes postmarks supplied by any private delivery service designated by the Service. An income tax return postmarked April 15 and received by the IRS on April 19 is considered timely filed.

No. Estimated tax payments should not be combined and sent with or be included in checks or money orders for payment of federal income tax with your 1040 tax return. Mail your estimated tax payments separately to the address shown in the 1040-ES instructions.

Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. That rate is determined every 3 months. For 2013 the interest rate is 3%. In addition, if you filed on time but did not pay on time, you will generally have to pay a late payment penalty of one half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, up to a maximum of 25%. The one half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy. If you owed tax and did not file on time, the penalty is even higher. The combined late filing and late payment penalty is 5% of the tax owed for each month, or part of a month, that your return was late, up to a maximum of 25%. If your return was over 60 days late, the minimum penalty is the smaller of $100 or 100 percent of the tax owed.

The date the IRS will accept a return as timely filed when mailed from overseas is if it is postmarked by midnight of the filing due date.

The IRS will waive penalties when allowed by law if you can show that you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee. The IRS will also waive interest that is the result of certain errors or delays caused by an IRS employee.

Generally, you must pay estimated tax for the current year if you expect to owe at least $1,000 in tax for the current year, after subtracting your withholding and refundable credits and you expect your withholding and refundable credits to be less than the smaller of: 90% of the tax to be shown on your current year tax return, or 100% of the tax shown on your prior year tax return. Your prior year tax return must cover all 12 months. These percentages may be different if you are a farmer, fisherman, or higher income taxpayer. You do not have to pay estimated tax for the current year if you were a U.S. citizen or resident alien for all of the prior year and you had no tax liability for the full 12-month prior year tax year. You had no tax liability for the prior year if your total tax was zero or you did not have to file an income tax return.