The Illinois Department of Revenue has introduced expanded penalty abatement options to help taxpayers who miss deadlines or face compliance challenges. The changes provide relief for individuals filing a tax return for the first time and for those who can show “reasonable cause” for delays in meeting filing or payment requirements under Illinois law.
The late filing penalty applies when taxpayers miss the prescribed due date for submitting a required return. Under the Illinois Income Tax Act, the penalty is the lesser of $250 or 2 percent of the tax required to be shown on the return. If a return is filed but cannot be processed, the Illinois Department grants 30 days for correction before the penalty is imposed. A filing or nonfiling penalty may also apply when the same return is repeatedly late or improperly prepared.
Taxpayers who submit their returns but do not make timely payments face separate penalties under the Illinois Income Tax Act and other state statutes. The late payment penalty is set at 2 percent of the unpaid tax if payment is one to thirty days late. If the taxpayer fails to pay after thirty-one days, the applicable late payment penalty increases to 10 percent of the amount owed. This calculation applies similarly to other statutes, including the Retailers Occupation Tax Act, Racing Privilege Tax Act, and Use Tax Act.
Failure to file or late filing can also trigger additional penalty amounts. These include interest charged at the underpayment rate, calculated as simple interest until the final liability is paid. In some cases, a personal liability penalty may be imposed equal to the trust tax collected but not remitted. Taxpayers can seek relief through penalty abatement if they demonstrate a reasonable attempt to comply and provide an amended return or other documentation showing the correct tax.
Illinois law automatically applies penalties when a taxpayer misses the prescribed due date for a required tax return. The penalty is calculated based on the tax required to be shown on the return, even if only part of the tax is unpaid. For individuals and businesses subject to the Illinois Income Tax Act, the filing or nonfiling penalty ensures that taxpayers meet obligations within the date prescribed. Similar requirements exist under the Retailers Occupation Tax Act, Use Tax Act, Racing Privilege Tax Act, and Property Tax Code, where timely payments are a central condition of compliance.
The penalty imposed in a late filing or nonfiling case includes a percentage charge and interest accrued. Illinois Department records show that penalty amounts may be imposed equal to 2 percent for short delays and up to 10 percent for longer nonpayment. In addition, interest charged at the underpayment rate continues to apply until the final liability is settled. This interest is calculated as simple interest, with the rate tied to the Internal Revenue Code. Even when penalty abatement is granted, taxpayers remain responsible for the correct tax and interest paid on the unpaid balance.
Taxpayers who fail to file or file an incorrect return are not left without options. Illinois law allows taxpayers to submit amended or prepared returns to show the correct tax liability. If a filing is determined to have been made in error but later corrected within a prescribed period, penalty abatement may apply. To qualify, the taxpayer must show a reasonable attempt to comply and that ordinary business care was exercised. Penalties for intentional disregard, however, remain in force, with higher penalty amounts imposed equal to the unpaid tax and any additional penalty specified by law.
The Internal Revenue Code provides a model for many state penalty provisions. At the federal level, the IRS offers First-Time Penalty Abatement, which allows relief for taxpayers with a clean compliance history. This federal approach influenced Illinois law, ensuring that penalty abatement is available when a taxpayer shows ordinary business care and reasonably attempts to comply.
Illinois statutes mirror these federal standards. The Illinois Income Tax Act sets out late filing penalty and late payment penalty provisions tied to the tax required to be shown. Similarly, the Retailers Occupation Tax Act and Use Tax Act apply penalties when a transaction reporting return required by law is filed late or when unpaid tax is discovered.
Other state statutes, including the Racing Privilege Tax Act and Property Tax Code, contain similar provisions. Each requires filing returns on or before the prescribed due date, with a penalty equal to a percentage of the unpaid tax. Interest charged accrues until the total tax and interest paid resolve the final liability. These laws ensure penalties are applied similarly across different areas of Illinois law, while allowing for penalty abatement in cases of first-time error or reasonable cause.
The Illinois Department of Revenue said the expanded policy emphasizes compliance over punishment. “Our priority is that taxpayers file returns and pay the correct tax. Penalty abatement allows first-time filers or those with reasonable cause to show ordinary business care without facing the full late filing penalty or late payment penalty,” a department spokesperson said.
Tax experts at the University of Illinois Tax School added that aligning state rules with the Internal Revenue Code reduces disputes and clarifies when a filing or nonfiling penalty applies. Practitioners also note that the change benefits small businesses subject to the Retailers Occupation Tax Act and Use Tax Act, where transaction reporting returns required by law are often complex.
Taxpayers who receive a notice of penalty should first review department records to confirm the tax required to be shown and the prescribed due date. If the filing was determined to be late or incomplete, the Illinois Department of Revenue advises submitting a written request for penalty abatement. Documentation, such as an amended return, proof of ordinary business care, or evidence of hardship, strengthens the case.
Even when relief is granted, the taxpayer pays the correct tax and any interest accrued. Filing returns properly and making timely payments remain the best ways to avoid tax problems. Businesses under the Retailers Occupation Tax Act or Use Tax Act should ensure each transaction reporting return required by law is submitted on time to prevent additional penalties or interest charges.
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