Tax Tip #16 for Tax Professionals - Understanding income tax penalties and interest rates

Minnesota Department of Revenue sent this bulletin at 04/21/2021 10:33 AM CDT

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Minnesota Department of Revenue

The Minnesota Department of Revenue may assess penalties and interest on income tax returns. It’s important to understand these penalties and when we may impose them. 

Type of Penalty

Description of Penalty

Late Filing

Assessed on any unpaid balance when your client files a Minnesota income tax return more than six months after the due date. There is no penalty for filing late for a refund except for cases of extended delinquency penalties.

Late Payment

Assessed on the unpaid balance when your client pays income tax after the due date.

Extended Delinquency for Missing Returns

Assessed when we send your client a Request for Missing Return letter and they fail to respond within the time allowed on the letter (normally 30 days).

Late Payment for Tax Assessments

Assessed when we send your client a Notice of Change letter and they fail to pay any tax owed within 30 days of the assessment date (or 30 days an appeal resolution).

Intentionally file a false or fraudulent return to claim a refundable credit

Assessed when your client fraudulently claims a refundable credit.

Underpayment of Estimated Tax

May be assessed if your client’s tax liability is more than $500 after subtracting Minnesota withholding and refundable credits. The penalty may also apply if your client did not make Minnesota estimated payments on time.  

More information on these penalties is available on our Penalties and Interest for Individual Income Tax page.

COVID-19 Penalty Relief: You may ask us to cancel or reduce filing or payment penalties if you have a reasonable cause or are negatively affected by the COVID-19 pandemic. For details, updates, and resources, visit Our Response to COVID-19.

Interest Rate

We charge interest on tax and penalty from the time a debt is past due until it is paid in full. Interest rates may change annually. The interest rate for 2021 is 3%.

Worksheet to Determine Penalty and Interest

If your clients file or pay after the due date, calculate the penalties and interest they will owe. To do this, complete the “Worksheet to Determine Penalty and Interest” on page 20 of the instructions for 2020 Form M1, Individual Income Tax. If you do not complete the worksheet, we will add the amount of interest and penalty to your clients’ amount owed.