Many small business owners may not be aware that they are required to file a return with the IRS for their retirement plan. If you miss filing a Form 5500-EZ and you have a small business retirement plan, you may face stiff penalties of up to $15,000 per missed return.
But based on an IRS news brief published in July, the IRS is offering a reduced-penalty program for those who file late. This late-filer program was piloted in 2014 and was made permanent in 2015. According the IRS, approximately 12,000 late returns have been filed under this program.
With the reduced-penalty program, later filers are assessed a $500 penalty per return with a maximum penalty of $1,500 per retirement plan. As a general rule, retirement plans that cover a 100% owner or business partners in a business partnership, spouses of owners or partners, and some foreign plans are eligible for participating in this reduced penalty late filing program.
If you did not realize there were tax filing requirements for small business retirement plans and need to file late, this program offers a significant savings by filing now and avoiding a potentially much larger penalty. If the IRS locates you first and assesses a penalty, you’re no longer eligible to participate. So filing under this program as quickly as possible is essential.