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The IRS sets the interest rate late taxpayers owe by taking the federal short-term interest rate in use at the time and adding 3 percent. The rate is adjusted each quarter. Interest accrues for each day you are past the filing deadline. The simplest way to compute the interest you owe is to use the IRS calculator, which you can access at irscalculators.com. Plug in the tax year, the date the tax was due, your filing status and the amount of tax you owe and the calculator will compute the amount of interest you should add to the tax, using the current interest rate set by the IRS
Late Filing Penalty
In addition to the interest due on your unpaid taxes, if you wait to file your return until after the filing deadline, you’ll owe a late filing penalty. As of publication, this penalty is 5 percent of the amount you owe for each month you are late. The IRS treats partial months like full months when assessing this penalty, so if you are one month and three days late filing your return, you’ll owe the penalty for two months. If your return is more than 60 days overdue, your penalty will be $135 or 100 percent of the amount of taxes you owe, whichever is less. You can use the IRS calculator to figure this penalty for you.
Late Payment Penalty
If you file your tax return on time but don’t
pay the full amount of taxes you owe at the time of filing, you’ll have to pay a late payment penalty of one-half of 1 percent for each month your payment is late, up to 25 percent of the amount of tax that remains unpaid. If you request installment payments when you file your return on time, your penalty will be reduced to one-quarter of 1 percent each month on any remaining unpaid balances. The IRS applies any payments you make on the installment plan to the amount you owe in taxes first, then to the penalties you owe, then to the interest owed.
Waiver of Penalties
You may be able to avoid paying penalties to the IRS if you can show you had a good reason for failing to file your taxes, or failure to file them on time. For example, if you were in the hospital, or dealing with the very recent death of a loved one, or your house burned down or some similar tragedy occurred, the IRS can choose to waive penalties, though you would still owe interest on the amount owed. The IRS handles each case individually so you would need to appeal any penalty assessments and provide proof of the reason for your delay. Also, you might have different deadlines for filing your taxes and paying any money owed if you are a member of the military serving in a combat zone, or a U.S. citizen or resident alien and you live and work abroad.Source: ehow.com