There are a number of reasons why someone might miss the deadline to file or pay their Heavy Highway Vehicle Use Tax Return, but whether they didn’t have the funds, they were confused by the due date, or they simply forgot about it, the outcome is still the same. If you don’t file and pay on time, you’ll likely face IRS penalties. Luckily, even if you can’t pay just yet, the 2290 late fees may be more manageable than you’d think.
IRS penalties for Form 2290 are a percentage of the tax liability; in other words, your 2290 late fees will be proportional to the taxes you owe. This means that companies filing many vehicles with a larger tax liability — unless all vehicles are Suspended, making their tax liability zero — are subject to larger penalties. Their taxes will be greater, so accordingly, their penalties will be too. If you don’t owe anything, a 2290 tax return filed late will have a $0 penalty, but we still recommend filing on time (or close to on time) since it shows goodwill with the IRS.
2290 penalties come in two forms: failure to file and failure to pay. If you forget to file form 2290, you’ll be faced with a penalty of 4.5% of your total tax liability, and if you neglect to pay your Heavy Highway Vehicle Use Tax Return, you’ll face an additional penalty of 0.5%. So, when you file a return late, the general rule of thumb is that 5% of the tax liability is added to your balance at the beginning of each month. However, by law, neither penalty can exceed 25%. This means that beginning with the 6th month, only the 0.5% failure to pay penalty will be assessed, and it will continue being assessed until the 50th month (that’s over 4 years late).
On top of the late fees, you’ll be charged interest as well. When interest rates are low, the interest on balances due are negligible, but the later you file, the more significant they become. Calculating interest is complicated since the IRS resets their interest rate each quarter for the upcoming quarter, and the exact rate will vary based on a handful of factors. In 2021-Q4, it stands at 3%, which is an all-time low (the interest rate will likely begin increasing in the upcoming years).
The most common mistake we see when it comes to the Form 2290 deadline is truck owners thinking Form 2290 is due when their vehicle registrations expire. This is never the case unless your registration happens to expire in August each year, or you have just put the vehicle into service.
Whether it be for the full year or just a portion of it, like insurance, every 2290 return is pre-paid. The Form 2290 HVUT tax period begins every July 1 and covers your vehicles for twelve months. This cycle repeats every year, and in most cases, the last day you can file before incurring Form 2290 late fees will be August 31st. However, that’s assuming your trucks have hit the road on or before July. With new vehicles and those first used in a month other than July, you’ll still pay through June 30th, but the Form 2290 deadline is a bit more complicated. In those situations, the last day to file will be the last day of the month following the month they were first used. For instance, if a truck is first used at any point in March, the deadline to file Form 2290 will be April 30th, if the vehicle was first used in April, the deadline will be May 31st, and so on. The only exception is if the deadline falls on a weekend or holiday, in which case the filing deadline is extended to the next business day.
One important note about Form 2290 late fees: the late fees are assessed at the beginning of each month after the due date. Therefore, even if you’re just one day late to file and pay, the IRS will assess late fees as if you were one month late and you’ll incur the full 5% penalty.
The 2290 late fees are assessed monthly for up to five months, reaching a maximum of 25% of your total tax liability. So, if your 2290 tax is $550, you could be looking nearly $700 due by month five, and if you had a fleet of ten vehicles each taxed at $550, that number would jump up to $7,000, a whopping $1,500 in additional penalties. Luckily, even if you don’t have the funds to pay your tax liability on time, you don’t necessarily have to face this steep of a penalty. The majority of these fees come from a failure to file — in comparison, the failure to pay fee is rather inconsequential (it’s only a tenth of the failure to file fee).
So, if you can’t pay the full amount upfront, file anyway, and pay whatever you can afford when you file — the IRS recommends it. Even without setting up a payment plan, we have run into some folks who file and pay over a few months. If your tax liability is $550 and you file on time but pay the tax over five months, you reduce the penalties you pay by over $100 compared to filing six months late when you can afford to pay in full. (Always talk to your tax advisor since business finance is complex and there may be a better strategy.)
Depending on your specific tax situation, you may be eligible for a payment plan. According to the IRS, if you can’t pay in full upfront, you could opt for a short-term payment plan, paying in 180 days or less, or a long-term payment plan, a monthly installment agreement. However, these plans are only for truck owner-operators that qualify. To apply for a long-term plan, you must have filed all of your required returns, plus, you must owe under $50,000 in taxes, penalties, and interest combined to apply as an individual, or under $25,000 to apply as a business (if you are a sole proprietor or independent contractor, apply for a payment plan as an individual). Short-term plans are only available to individuals, and for that option, you can’t owe more than $100,000 in taxes, 2290 late fees, and interest. If you meet these requirements (among others), you can apply online, and you’ll immediately be notified whether the agreement has been approved. But, it’s important to note that there are limits to these plans, and there is an application fee.
If you’ve explored all of your other options but still owe too much to realistically pay, you may not be out of luck. When all else fails, you could be eligible for an offer in compromise. If approved, this allows those with unpaid tax debt to settle their debts for less than they owe. That being said, this option isn’t for everyone. An offer in compromise is only for those who can’t pay the full amount or those who would suffer financial hardship if they did so. To determine if this is true, the IRS looks at each filer’s individual circumstances, including their ability to pay, income, expenses, and asset equity (if you’re in the midst of an open bankruptcy proceeding, you’re automatically barred from this option). If you’re interested in checking your eligibility, the IRS offers a free pre-qualifier tool.
If you know you’ll need some extra time to file your Form 2290, you can submit a request for an extension, which could provide you with up to six months in additional time to file before accruing failure to file 2290 late fees* (the time allotted in an extension differs for those abroad, though). To take advantage of this option, you must write to the IRS before the 2290 deadline passes (we’d advise writing 60 days before you are required to file since the IRS has been slow to respond lately, and once you are past due, you are unlikely to get approved for an extension). The letter must explain, in detail, why the extra time is necessary, and be sent to the following address:
Internal Revenue Service
7940 Kentucky Drive
Florence, KY 41042-2915
* It’s important to note that due date extensions only provide you with extra time to file. Failure to pay penalties will still be assessed on any tax liability even if you are granted the extension.
If you file Form 2290 by mail, there’s no saying when you’ll receive your stamped Schedule 1, but those who e-file with i2290 will receive a stamped Schedule 1 in minutes (and we’ll maintain a copy of that Schedule 1 for seven years so you always have access to it when you need it).
With i2290, you can file your return at any time, from any place. Our staff is happy to help guide you through the process, and you can rest assured that there will never be hidden costs or surprise fees. Ready to bypass the penalties and file your Form 2290? Create an account with us today!
Special note: This article is for informational purposes, and is not intended to provide, and should not be relied on for tax, legal, investment, or accounting advice. The best way to ensure you’re correctly navigating IRS penalties and paying appropriate taxes is by following IRS regulations and consulting with a tax professional.
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