Penalties and Interest The North Carolina General Statutes provide both civil and criminal penalties for failure to comply with the income 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. Note: Because of the COVID-19 pandemic, state and federal governments offered both administrative and statutory tax relief to taxpayers. Information about this relief is provided on the Department's website and in the 2020 Personal Taxes Divisions Bulletins. Contents Failure to File and Failure to Pay Penalties Large Tax Deficiency and Negligence Penalties Informational Return Penalties Failure to Report Federal Changes Fraud Collection Assistance Fee Interest Underpayment of Estimated Income Tax Waiver of Penalty or Interest Failure to File and Failure to Pay Penalties 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. Returns filed after the original due date are subject to a late payment penalty. From January 1, 2022, through June 30, 2022, the applicable rate is 10 percent (10%) regardless of how late the tax is paid. Beginning July 1, 2022, 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%). If you received an extension to file your N.C. individual income tax return and you paid at least 90 percent (90%) of the tax due by the original due date, you will not be automatically penalized for late payment. If the 90 percent (90%) rule is met, any remaining balance due, including interest, must be paid with the income tax return on or before the extended due date to avoid the late payment penalty. If you payment is late, calculate the amount of penalty due and include it on Form D-400, Line 26b. On an amended return, the late payment penalty will not be assessed if the amount shown due on the amended return is paid when the return is filed. A proposed assessment of additional tax due is subject to the late payment penalty if payment of the tax is not received within 45 days of the date of the notice of proposed assessment. 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 10% 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. Large Tax Deficiency and Negligence Penalties 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. Informational Return Penalties Pursuant to G.S. §105-236(a)(10), the penalty for failure to file an informational return required by Article 4A, 5, 9, 36C, or 36D by the due date is $50 per day, up to a maximum of $1,000. In addition, a penalty of $200 will be assessed if the informational return is not filed in the required format. Failure to Report Federal Changes 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. Fraud 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. Collection Assistance Fee 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. Interest Interest accrues on tax not paid by the original due date even though a taxpayer may have an extension of time for filing a return. Interest accrues on overpayments beginning 45 days after the latest of (1) the date the final return was filed, (2) the date the final return was due to be filed, or (3) the date of the overpayment. The law requires the Secretary of Revenue to establish the interest rate on or before June 1 for the following six-month period beginning on July 1, and on or before December 1 for the following six-month period beginning on January 1. The rate set by the Secretary may not be less than 5% per year or greater than 16% per year. For more information, see Interest Rates. Underpayment of Estimated Income Tax Interest on the underpayment of estimated income tax is computed on Form D-422, Underpayment of Estimated Income Tax by Individuals. If interest on the underpayment is applicable, add the amount of interest to the tax due and include the full payment with the return. Waiver of Penalty or Interest Penalties may be waived by the Secretary of Revenue pursuant to the Department's Penalty Waiver Policy. A request for waiver or reduction of penalty generally must be in writing and must include an explanation for the request. 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. When the request is based on the reason of good compliance, a request to waive a penalty can be made by telephone. As a general rule, interest cannot be waived or reduced. However, interest may be waived or reduced if it has accrued on taxes imposed prior to or during a period for which the taxpayer has declared bankruptcy under Chapter 7 or Chapter 13 of Title 11 of the United States Code.
Penalties and Interest The North Carolina General Statutes provide both civil and criminal penalties for failure to comply with the income 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. Note: Because of the COVID-19 pandemic, state and federal governments offered both administrative and statutory tax relief to taxpayers. Information about this relief is provided on the Department's website and in the 2020 Personal Taxes Divisions Bulletins. Contents Failure to File and Failure to Pay Penalties Large Tax Deficiency and Negligence Penalties Informational Return Penalties Failure to Report Federal Changes Fraud Collection Assistance Fee Interest Underpayment of Estimated Income Tax Waiver of Penalty or Interest Failure to File and Failure to Pay Penalties 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. Returns filed after the original due date are subject to a late payment penalty. From January 1, 2022, through June 30, 2022, the applicable rate is 10 percent (10%) regardless of how late the tax is paid. Beginning July 1, 2022, 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%). If you received an extension to file your N.C. individual income tax return and you paid at least 90 percent (90%) of the tax due by the original due date, you will not be automatically penalized for late payment. If the 90 percent (90%) rule is met, any remaining balance due, including interest, must be paid with the income tax return on or before the extended due date to avoid the late payment penalty. If you payment is late, calculate the amount of penalty due and include it on Form D-400, Line 26b. On an amended return, the late payment penalty will not be assessed if the amount shown due on the amended return is paid when the return is filed. A proposed assessment of additional tax due is subject to the late payment penalty if payment of the tax is not received within 45 days of the date of the notice of proposed assessment. 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 10% 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. Large Tax Deficiency and Negligence Penalties 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. Informational Return Penalties Pursuant to G.S. §105-236(a)(10), the penalty for failure to file an informational return required by Article 4A, 5, 9, 36C, or 36D by the due date is $50 per day, up to a maximum of $1,000. In addition, a penalty of $200 will be assessed if the informational return is not filed in the required format. Failure to Report Federal Changes 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. Fraud 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. Collection Assistance Fee 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. Interest Interest accrues on tax not paid by the original due date even though a taxpayer may have an extension of time for filing a return. Interest accrues on overpayments beginning 45 days after the latest of (1) the date the final return was filed, (2) the date the final return was due to be filed, or (3) the date of the overpayment. The law requires the Secretary of Revenue to establish the interest rate on or before June 1 for the following six-month period beginning on July 1, and on or before December 1 for the following six-month period beginning on January 1. The rate set by the Secretary may not be less than 5% per year or greater than 16% per year. For more information, see Interest Rates. Underpayment of Estimated Income Tax Interest on the underpayment of estimated income tax is computed on Form D-422, Underpayment of Estimated Income Tax by Individuals. If interest on the underpayment is applicable, add the amount of interest to the tax due and include the full payment with the return. Waiver of Penalty or Interest Penalties may be waived by the Secretary of Revenue pursuant to the Department's Penalty Waiver Policy. A request for waiver or reduction of penalty generally must be in writing and must include an explanation for the request. 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. When the request is based on the reason of good compliance, a request to waive a penalty can be made by telephone. As a general rule, interest cannot be waived or reduced. However, interest may be waived or reduced if it has accrued on taxes imposed prior to or during a period for which the taxpayer has declared bankruptcy under Chapter 7 or Chapter 13 of Title 11 of the United States Code.
