Learn something new every day
More Info... by email
Tax penalties are fees that must be paid due to misrepresenting information on a tax return, whether this was a deliberate misrepresentation or an honest mistake when completing the taxes, or due to making late tax payments. Tax penalties vary based on the tax infringement, and the laws in the respective jurisdiction; they are usually a percentage of either the tax due or the tax underpayment, plus interest. Keep in mind that these penalties must be paid in addition to any taxes owed. They do not replace the taxes one already owes, but are simply added on, and will continue to increase due to interest and further penalties if they are not paid promptly.
Some of the most common tax penalties occur due to understatement, or under reporting, of income. This may be from regular income, or income through an estate or large gift; all of these must be correctly reported on one's income taxes. Incorrectly reporting these amounts will generally lead to a tax penalty being assessed on the difference between the actual amount and what was reported. This behavior may also be referred to as tax fraud or tax evasion. Keep in mind that penalties are only one of the potential repercussions from this type of behavior; in the United States and in countries around the world, tax evasion or fraud can lead to imprisonment if the offense is serious enough.
Other frequent tax penalties are assessed due to late payment of taxes. The penalty is generally a certain percentage of the tax that is due and is yet unpaid, though again, this percentage often increases if the taxes are late due to fraud. Penalties may also be charged if one makes late tax payments as part of an agreement with the tax collecting agency of the government, such as the IRS in the United States, to pay taxes off over a period of time. In addition, people who are self-employed are often required to withhold their own taxes and make estimated payments throughout the year; underestimating these payments, or not making them at all, may also lead to significant tax penalties at the end of the year.
These are some of the most common examples of tax penalties, though there are others, so it is important to always be honest and to bring any tax questions to an accountant or tax lawyer. It is often possible to appeal tax penalties if they have been assessed in error. In addition, it is important to create a payment plan with the tax agency if it is not possible to pay all of the tax owed up front, because this can help to reduce interest and penalties as well as prevent possible wage garnishment.
Though I have tried, I cannot pay a credit card company their required amount. They filed a court summons. I called them and they said they can put a lien on the home I live with my family in; also, they can garnish my wages. I am self employed. How can they get money from the contractors I work for? Thanks for your help.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!