Tax agencies use interest and penalty charges to ensure compliance with tax laws. Interest and penalty charges serve as escalating sanctions against failure to comply with the law. Any overdue tax liability will result in interest charges on the balance due.
The Massachusetts interest rate for underpayments is equal to the federal short-term rate (which can change quarterly) plus four percentage points, compounded daily. The Massachusetts interest rate for overpayments is equal to the federal short-term rate (which changes quarterly) plus two percentage points, simple interest. The rate is published through Technical Information Releases in the Rulings and Regulations area of this website.
Under Massachusetts state law, there are penalties that are applied automatically to late returns or payments. Most often, a late return will generate a late-file penalty of 1 percent per month (or fraction thereof) on the unpaid tax; an unpaid balance will generate a 1 percent late pay penalty per month (or fraction thereof). Late return penalties and unpaid balance penalties are each capped at 25 percent of the unpaid tax.
There are also penalties that apply only to certain taxpayers; for example, a partnership faces a $5-a-day penalty for failure to file its annual partnership return, and failure of any taxpayer to respond to a Department of Revenue notice may, in some cases, result in a doubling of the assessment. Businesses with annual withholding liabilities in excess of $25,000 who fail to make timely deposits of withholding tax are liable for a 5 percent penalty on the amount of underpayment. The amount of underpayment is any portion of a tax payment or weekly deposit that was due but not paid on time.
If you are required to file returns, make payments or submit data to DOR in an electronic format, and you do not do so, you will be subject to a penalty of up to $100 for each return, payment or data transfer submitted improperly to DOR. See Technical Information Release (TIR) 04-30 for detailed information about the Department's electronic filing requirements.
Interest will accrue on unpaid penalties as well as on unpaid tax. Interest is calculated on unpaid failure-to-file penalties and underpayment of estimated tax penalties starting on the due date through the date of full payment and on unpaid failure-to-pay penalties starting 31 days after the Notice of Assessment and continuing to the date of full payment.
You should also be aware that willful evasion of taxes is a felony punishable by imprisonment for up to five years and/or a fine -- in addition to the tax, interest and penalty owed -- of up to $100,000 for individuals or $500,000 for corporations for each offense.
If a corporation or partnership fails to pay to the Commissioner any required trustee taxes of the corporation or partnership, the person or persons with the duty and authority to collect and remit the firm's trustee taxes may be held personally liable for any sums due the Commissioner, including tax, penalties and interest, even if the interest and penalties accrue prior to the date personal liability is established.