HOUSE RESEARCH
Short Subjects
Nina Manzi and Joel Michael Updated: January 2017
Penalties for Underreporting Minnesota Individual Income Tax
What is the civil
penalty for failure
to pay Minnesota
income tax by the
due date?
For calendar year taxpayers, final payments are due on April 15 following the close
of the tax year. (Most taxpayers pay on a calendar-year basis; a small number use
fiscal years instead.) Income tax not paid by April 15 is subject to a late payment
penalty equal to 4 percent of the amount not paid.
An additional 4 percent penalty applies to amounts owed due to an assessment
order from the commissioner of revenue if the taxpayer either does not pay the
amount assessed within 60 days of the order or does not appeal the assessment.
An additional extended delinquency penalty of 5 percent of the tax due applies to
income tax not paid within 180 days of an order from the commissioner or the date
a return is filed.
Is there a
reasonable cause
exception?
Yes. A taxpayer is presumed to have reasonable cause for underpayment if the
taxpayer paid 90 percent of the amount due by the April 15 due date, filed the
return by October 15, and paid the balance of the tax due when the return was filed.
In this situation, the 4 percent late-payment penalty does not apply.
What is the
“additional tax
charge”?
Individuals who expect to owe $500 or more after withholding and credits must
make estimated payments, which are due in four installments: April 15, June 15,
and September 15 during the tax year, and January 15 following the close of the tax
year. If estimated payments and withholding do not equal at least 90 percent of the
tax due, or 100 percent of liability for the preceding tax year (110 percent if
adjusted gross income exceeds $150,000), the taxpayer is subject to an additional
tax charge. The additional tax charge equals 4 percent of the amount underpaid,
prorated by the number of days elapsed between the due dates of the four
installments and the date of the final payment.
The additional tax charge does not apply if the individual was a Minnesota resident
in the preceding tax year but did not have tax liability.
What is the civil
penalty for failure
to file a return?
For calendar year taxpayers, income tax returns are due by April 15 following the
close of the tax year, but there is no late filing penalty if the return is filed by
October 15. Taxpayers who fail to file an individual income tax return by October
15 must pay a penalty equal to 5 percent of the tax not paid by October 15.
If an individual is required to file a return and does not file it by October 15 and
receives a written demand to file from the Department of Revenue, the individual
must file within 60 days or face an additional “extended late file” penalty. The
extended-late-file penalty equals the greater of 5 percent of the tax not paid or
$100.
The Research Department of the Minnesota House of Representatives is a nonpartisan office providing legislative, legal,
and
information services to the entire House.
House Research Department 600 State Office Building St. Paul, MN 55155 651-296-6753 www.house.mn/hrd/
What other civil
penalties are there?
•
Failure to report changes to the federal return: 10 percent. When a
federal return is amended by the taxpayer or corrected by the Internal
Revenue Service, a copy of that return or a letter of explanation must be
reported to Minnesota within 180 days. An amended Minnesota return is
also required within 180 days. If federal changes are not reported, a penalty
of 10 percent of the underpayment of Minnesota tax attributable to the
federal change applies.
• Intentional disregard of laws: 10 percent. A 10 percent penalty applies if
the taxpayer has been negligent or shown intentional disregard of the law or
rules for determining liability, but didn’t intend to defraud.
• Substantial understatement of liability: 20 percent. “Substantial
understatement” means underreporting of the correct tax that exceeds the
greater of $5,000 or 10 percent of the tax actually owed. A penalty of 20
percent applies to a substantial understatement of liability.
• Filing a frivolous return: greater of 25 percent or $1,000. A return is
considered frivolous if it is substantially incorrect on its face or lacks
information needed to judge the accuracy of the return, and consists of
inappropriate conduct or reflects a desire to impede the tax process.
• Filing a false or fraudulent return: 50 percent. A penalty of 50 percent
applies to the underreported liability and overstated refund claimed if the
commissioner can prove the return was fraudulent in order to evade the tax,
or if failure to file a return was intended to evade the tax. The 50 percent
penalty also applies to fraudulently claimed refundable credits (the
dependent care credit, the working family credit, the K-12 education credit,
the military service combat zone credit, and the property tax refund).
Does interest apply
to underreported
tax liability and
penalties?
In addition to the penalties listed, taxpayers who underreport individual income tax
liability must pay interest on the amount underpaid and on the associated penalty
from the date the tax was due. Penalties and underreported liability bear interest at
an annual rate tied to the prime rate. This rate is adjusted annually and is set at 4
percent for 2017; it was at 3 percent for 2010 to 2016.
How are the
penalties applied?
The penalties for underreporting of individual income tax liability are imposed and
collected in the same manner as the original taxes.
Are failing to file
and underreporting
liability criminal
offenses in
Minnesota?
In certain circumstances, failing to file and underreporting tax liability are criminal
offenses. It is a gross misdemeanor to knowingly fail to file a return or pay tax. It
is a felony to willfully fail to file a return or pay tax, with intent to evade the tax,
and a felony to file a false return concerning a material matter. Penalties for these
criminal offenses are in addition to civil penalties.
For more information: Contact legislative analysts Nina Manzi at 651-296-5204 or Joel Michael at
