What Happens if You File Your Taxes Late?
Most people know that you shouldn’t file your taxes late. But what happens if you do? What are the penalties? In the United States, the annual deadline for most people to file their federal income tax return is typically April 15. If you fail to file a return, fail to pay taxes you owe, or only partially pay for the taxes you owe, the IRS may impose a number of penalties.
Failure-to-Pay penalty
If you file your taxes by the deadline but fail to pay the taxes you owe, you may incur a failure-to-pay penalty. According to the IRS, this normally entails a penalty of half a percent of your unpaid taxes, meaning that the lower the amount you owe, the lower the penalty for failing to pay. However, the penalty goes up by another half percentage point for each month or part of a month that the tax remains unpaid, up to a 25-percent limit. “That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes,” says the IRS.
This penalty applies whether you fail to pay any amount of tax that you owe. Whether you’ve paid some of your taxes or none of them, the IRS may charge you, over time, for up to 25 percent of that unpaid amount.
Failure-to-File penalty
Failing to file your taxes is more penalizing than filing and failing to pay. “You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date,” the IRS advises. Even if you do not file, the IRS still knows how much you owe on your taxes and will charge you five percent of that amount for each month that the return is late, up to 25 percent. However, if you file your return more than 60 days after the due date, the IRS will charge you either $135 or 100 percent of the tax you owe, whichever is lower.
Note that the failure-to-file penalty only applies if you owe tax to the IRS. If the IRS owes you a refund instead, you will not be penalized for filing a late return. If you fail to file and fail to pay your taxes by the due date, the IRS does not penalize you further. The maximum penalty is still five percent per month up to 25 percent.
Interest rates
Though the IRS limits penalties to 25 percent of your owed tax amount, interest rates are still applied to any unpaid tax on a daily basis, with rates set every three months. “The Internal Revenue Code requires that the IRS review its interest rate quarterly in order to keep pace with the economy, but this doesn’t mean that the rate will always change quarterly,” notes Beverly Bird, a paralegal writing for TheBalance. Because compound interest can add up very quickly, it is in your best interest to pay your taxes — and any penalties — as quickly as possible.
Additional penalties
If the IRS determines that you owe taxes and you fail to either file or pay, it will send you a Notice and Demand for Payment. “If you don’t pay, the IRS can place a lien against your property, including your home and bank accounts,” Bird says. She adds that if you still do not pay after receiving the aforementioned notice, the IRS will send a Final Notice of Intent to Levy 30 days prior to the levy, at which point it may seize your property if you still haven’t paid or filed.
If you owe taxes and know that you cannot pay for them, it is still important that you file. “If a taxpayer can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS,” the IRS warns. You can also explore various payment options, obtain a deadline extension, or show reasonable cause for not filing or paying on time. If you are concerned about paying for taxes you owe, consult a tax expert at your local financial institution to discover your options.