Posted By Maria Hurd, CPA
The SECURE Act increased IRS Late Filing Penalties for Form 5500 by how much? How can I avoid them?
Tenfold. That’s how much the SECURE Act (the “Act”) increased the penalty for the late filing of a Form 5500 –TENFOLD! Before the Act, the IRS could assess a civil penalty of $25 for each day that the Form 5500 was late up to $15,000, but now, add a zero: the penalty is $250 per day not to exceed $150,000. What a difference one zero makes when it is at the end of a number!
IRS Penalty Relief
Thankfully, the IRS waives Form 5500 late filing penalties when the plan sponsor has submitted the late filing through the Department of Labor’s Delinquent Filer Voluntary Compliance Program (DFVCP) and also files directly with the IRS any missing Forms 8955-SSA, Annual Registration Statement Identifying Participants With Deferred Vested Benefits. However, for Form 5500-EZ or filings that cover only owners, or partners and spouses and, therefore, are not covered by ERISA and the DOL, the IRS has a separate Form 5500-EZ Late Filer Program.
Additionally, you can request a waiver of penalties because the late filing was due to reasonable cause and not willful neglect. This waiver is, generally, in the discretion of the IRS.
DOL Penalties are determined without regard to any extensions for filing.
DOL Penalties under the DFVCP
- Small Plans – $10/day up to $750/year and $1,500 cap
- Large Plans – $10/day up to $2,000/year and $4,000 cap
- Small Plans of 501(c)(3) organizations – $10/day up to a $750 overall cap
In general, large plans cover 100 participants or more, and small plans cover fewer than 100 participants. Please refer to our blog called “I Don’t Want to Grow Up, I Want to be A Small Plan” for more details on the 80-120 rule and the determination of your plan’s size.
DOL Penalties outside of the DFVCP
- $50/day up to $18,250/year for a late filing
- $300/day up to $30,000/year for a failure to file
DOL Maximum Penalty
The maximum penalty for failing to file Form 5500 as adjusted in 2020 increased from $2,194 to $2,233 per day that the filing is late without starting on the unextended due date, which is the last day of the seventh month after year end.
It Doesn’t Pay to Run and Hide
Hoping not to get caught is always an option, albeit a bad one. Getting caught means paying $250 per day to the IRS, PLUS either $50, $300 or $2,233 per day to the DOL. The alternative, coming clean, limits the penalty to $10 per day up to a reasonable cap of either $750, $1,500, or $4,000. These penalty possibilities should only lead to one conclusion: join the DFVCP immediately if you have a late or a missed filing. Wishing the problem away is like running if you’re on fire. Don’t! Stop what you’re doing, Drop the lower fee and Roll into the DFVCP program by following the instructions on the DOL Delinquent Filer Voluntary Compliance Program (DFVCP) Penalty Calculator and Online Payment and FAQ about the Delinquent Filer Voluntary Correction Program.