State of Michigan Tax Penalties

The bottom line is that the State will assess penalties for fraud, intentional disregard or negligence in return filing or preparation. The federal government feeds the tax information to the states and vice versa. As soon as you file your federal return, you can be certain that the state will be contacting you for their taxes rightfully owed. The State will also verify that income reported on the State MI-1040 is the same as the income reported on the federal 1040.

The type of penalties you are facing is:

  1. Failure to File a Tax Return
  2. Failure to Pay a Tax Return
  3. Failure to Pay the Withholding Tax in accordance to the federal schedule
  4. Failure to File an Information Return. An Information Return is a document that must be completed to clarify and document specific numbers and provide background data required to complete your return processing.

The penalties can be steep. Penalty is 5 percent of the total unpaid tax due for the first two months. After two months, 5% of the unpaid tax amount is assessed each month. The maximum late penalty is equal to 25% of the unpaid tax owed.

To calculate the penalty you may be facing refer to Michigan Department of Treasury.


According to Revenue Procedure 2005-3, written by the State legislature, under ‘Waiver for Reasonable Cause’ it states: “if a taxpayer establishes that the failure to pay or file was due to reasonable cause and not to willful neglect, the department shall waive the penalty.”

At Padgett, we exercise all opportunities we have to ethically and responsibly work with the State government to remove penalties and have them abated. KEEP in mind – interest accrues on penalties and we remind the State of this and also request removal of interest on penalties.

Call Christy at 586-323-2360 to learn about penalty waivers and if your situation makes you eligible.

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