Penalties and Interest for Individuals
Virginia law requires us to assess penalties for underpayment of tentative tax (extension penalty), late filing, and late payment. In addition, interest must be accrued on underpayments and late payments of tax, as well as on the unpaid balance of any assessment that is more than 30 days old.
Virginia law provides an automatic extension of 6 months for the filing of individual and fiduciary income tax returns. There is no extension of time granted for payment of taxes due. To avoid an extension penalty, you must pay at least 90% of the final tax liability by the original due date for filing the return. If you file your return within 6 months from the original date, but the balance of tax due with the return exceeds 10% of your total tax liability, the return will be subject to an extension penalty.
The extension penalty is assessed on the balance of tax due with the return at a rate of 2% per month or part of a month, from the original due date until the date the return is filed. The maximum penalty is 12% of the tax due.
The extension period ends 6 months after the original due date or on the date the return is filed, whichever is earlier. If you file your return more than 6 months after the due date, the automatic extension provision will not apply, and the return will be subject to the late filing penalty on any balance of tax due with the return. If you file your return within 6 months after the original due date but do not pay the tax due until after the return is filed, even if the tax is paid within 6 months after the original due date, the extension penalty will apply for the period of the extension, then the late payment penalty will apply for the remainder of the period for which the tax is unpaid.
Example: Combined Extension/Late Payment Penalty Assessment
Linda's individual income tax return was due to be filed on May 1. She filed on July 15, which was within six months from the original due date, but she did not pay the tax due of $2,000 until July 25. The tax due was more than 10% of her total tax liability for the year, so the return is subject to the extension penalty for May, June and part of July. Because Linda failed to pay the tax due by the date her return was filed, a late payment penalty will also be imposed for the remainder of July. The extension penalty and late payment penalty will be assessed as follows:
- Tax due reported on return - $2,000.00
- Extension penalty (3 months @ 2% per month) - $120.00
- Late payment penalty (1 month @ 6%) - $120.00
Note: Interest applies to any balance of tax due that is not paid by the original due date of a return, even if the return is filed under extension and/or is not subject to an extension penalty.
Late Filing Penalty
If you file your return more than 6 months after the due date and you owe tax, your return will be subject to a late filing penalty. The law provides for the penalty to be assessed at a rate of 6% per month or part of month from the due date of the return until the return is filed, or until the maximum penalty of 30% has accrued. Because the late filing penalty is not applied unless the return is filed more than 6 months after the original due date, a late filing assessment will reflect the maximum penalty of 30% of the tax due.
Late Payment Penalty
If you file your return within 6 months after the due date but do not pay the tax due until after that time, your return will be subject to a late payment penalty. Like the late filing penalty, the late payment penalty is assessed at a rate of 6% per month, with a maximum penalty of 30%. The late payment penalty will not be imposed in any month for which a late filing penalty has been assessed. In addition, the late payment penalty is generally not assessed when an additional balance of tax is assessed as the result of an audit of an income tax return that was filed in good faith. It is possible for a return to be subject to both the late payment penalty and the extension penalty, as explained above.
Waiver of Penalty
If extenuating circumstances kept you from filing your return or paying your tax on time, you can ask us to forgive penalties. Examples include illness or death of the taxpayer or tax preparer, destruction of records by fire, flood or natural disaster, or other unusual situations that reasonably kept you from filing or paying on time.
For penalties of $1,000 or less, write to Virginia Department of Taxation, PO Box 1115, Richmond, VA 23218-1115. For penalty amounts over $1,000, file an offer in compromise. Include a detailed letter explaining the basis for the waiver, and any documentation that will support your claim.
Virginia law requires us to assess interest on any balance of unpaid tax, from the due date for payment through the date the tax is paid. Interest charges apply to late payments and payments made with returns filed on extension, as well as to additional balances due with amended returns or assessed as the result of audit adjustments.
Interest is assessed at the federal underpayment rate established under Internal Revenue Code Section 6621, plus 2%. For the current daily interest rate, contact us at 804.367.8031.
In addition to the penalties discussed above, Virginia law also provides for civil and criminal penalties in cases involving fraud and failure to file. The civil penalty for filing a false or fraudulent return, or for failing or refusing to file a return with intent to evade the tax is 100% of the correct tax. In addition, criminal penalties of imprisonment for up to one year or a fine of up to $2,500, or both, can apply in cases of fraud and failure to file.