Penalties and Fees Overview
The North Carolina General Statutes provide both civil and criminal penalties for failure to comply with the tax laws. The more common penalties are included below. For additional information, see G.S. § 105-236. In addition to any applicable penalty, all assessments of taxes or additional taxes bear interest at the applicable rate from the due date until date of payment.
Under the provisions of G.S. § 105-236, both the late filing and late payment penalties can be applied for the same month. If the return is filed late with net tax due, both the late filing and late payment penalties will be assessed at the same time. “Net tax due” is the amount of tax required to be shown on the return less any timely payments of the tax and allowable credits.
Returns filed after the due date are subject to a failure to file penalty of 5% of the net tax due for each month, or part of a month, the return is late (maximum 25% of the additional tax), If the return is filed under an extension, the late filing penalty will be assessed from the extended filing date rather than from the original due date.
For taxes assessed on or after January 1, 2023, the late payment penalty is 5% of the tax not paid by the original due date of the return. Beginning July 1, 2027, the applicable rate is 2 percent (2%) for each month, or part of a month, that the payment is late (up to a maximum penalty rate of 10 percent (10%).
Returns filed after the original due date are subject to a late payment penalty. If a timely extension is filed, the penalty will apply on any remaining balance due if the tax paid by the original due date of the return is less than 90% of the total amount of tax due. If the 90% rule is met, any remaining balance due, including interest, must be paid with the income tax return on or before the expiration of the extension period to avoid the late payment penalty. Interest is due from the original due date to the date paid.
The late payment penalty will not be assessed if the amount shown due on an amended return is paid with the return. Proposed assessments of additional tax due are subject to the late payment penalty if payment of the tax is not received within 45 days of the assessment unless a timely Request for Departmental Review is filed. For more information on requests for reviews, see Appeals Process.
When there is an understatement of taxable income equal to 25% or more of gross income, the 25% large individual income tax deficiency or other large tax deficiency penalty will be assessed. When the percentage of understatement of taxable income is less than 25%, the 10% negligence penalty may be applied. The application of the 10% negligence penalty is based on the understatement of tax and will be made on the basis of the facts in each case. When the accuracy penalty has been assessed for federal income tax purposes, the 10% negligence penalty will be assessed for state income tax purposes, unless the 25% large individual income tax deficiency or other large deficiency penalty applies.
A large tax deficiency penalty or a negligence penalty cannot be assessed when the fraud penalty has been assessed with respect to the same deficiency.
G.S. 105-236(a)(10) imposes penalties on certain informational returns. Specifically, a taxpayer will be assessed a penalty of $50 per day with the maximum penalty of $1,000 for failure to timely file an informational return with the Secretary. In addition, a taxpayer will be assessed a penalty of $200 for failure to file an informational return in the format prescribed by the Secretary.
When a taxpayer fails to report federal changes within six months from the date the taxpayer is notified by the Internal Revenue Service of the correction or final determination, the taxpayer is subject to the failure to file penalty and forfeits the right to any refund as the result of the federal changes. The failure to file penalty begins at the expiration of the six-month period.
When an examination of an income tax return is based on a federal audit report and the fraud penalty has been assessed for federal purposes, the 50% fraud penalty will be assessed for state purposes. The fraud penalty may also be assessed when there is a deficiency or delinquency in payment of any tax because of fraud with intent to evade the tax. When the fraud penalty is assessed, no penalty for large tax deficiency, negligence or failure to pay shall be assessed with respect to the same deficiency; however, other penalties that apply, such as failure to file, will be assessed.
Any tax, penalty, and interest not paid within 60 days after it becomes collectible under G.S. 105-241.22 is subject to a 20% collection assistance fee. The fee will not apply if the taxpayer enters into an installment payment agreement with the Department before the fee is imposed. The fee may be imposed on defaulted installment payment agreements. For more information, see Collection Assistance Fee Frequently Asked Questions.
Penalties may be waived by the Secretary of Revenue pursuant to the Department's Penalty Waiver Policy. To request a penalty waiver for any penalty other than an information return penalty, taxpayers should complete and submit Form NC-5500, Request to Waive Penalties. To request a penalty waiver for an information return penalty, taxpayers should complete and submit Form NC-5501, Request for Waiver of an Informational Return Penalty.