Life is full of unexpected twists, and sometimes deadlines slip by, including tax filing deadlines. If you miss the original tax deadline for any reason, you could face a failure-to-file penalty from the IRS. This penalty applies to taxpayers who owe taxes and don’t file on time. But what does it mean if you’re late filing your taxes? Let’s break down what you need to know about the IRS’s failure-to-file penalty and how it works.
The Consequences of Filing Taxes Late
Filing your taxes late can lead to penalties and added costs if you owe money to the IRS. There are two main types of penalties to be aware of:
- Failure-to-File Penalty: This is applied when you don’t file your tax return by the due date (Tax Day) or the extended deadline if you requested an extension.
- Failure-to-Pay Penalty: If you owe taxes and don’t pay them on time, this penalty may apply.
Will You Face a Penalty or Interest for Filing Late?
If you file your federal income tax return after the deadline and owe taxes, you’ll typically face both a penalty and interest. However, you might avoid these charges if:
- You’re Expecting a Refund: If the IRS owes you money, there’s no failure-to-file or failure-to-pay penalty.
- You Qualify for Special Exceptions: Some taxpayers, such as military members serving abroad or individuals in federally declared disaster areas, may be eligible for extensions. Military personnel serving overseas generally get an automatic two-month extension to file. For taxpayers in disaster areas, the IRS will set specific deadlines for filing and payment extensions.
If you do owe taxes, the IRS will impose a late filing penalty and a late payment penalty. Additionally, they’ll charge interest on the unpaid balance from the original due date until the tax is paid.
Penalties for Late Tax Filing and Unpaid Taxes
Wondering what happens if you file your taxes late or fail to pay what you owe? The penalties aren’t straightforward and can vary depending on your specific situation. Let’s break it down clearly so you understand what’s at stake.
Late Filing Penalty
If you don’t file your tax return on time, here’s how the penalty works:
- 5% of the unpaid tax balance per month (or part of a month), capped at 25% of the total unpaid amount.
Late Payment Penalty
Failing to pay your taxes on time leads to another penalty:
- 0.5% of the unpaid tax per month (or part of a month) until the balance is paid, also capped at 25%.
How the Penalties Work Together
The way these penalties are applied changes over time:
- For every month your return is late, the combined penalty is 5% of the unpaid tax (4.5% for late filing and 0.5% for late payment), capped at 25% of your unpaid taxes.
- The late filing penalty applies only to taxes still unpaid after the due date. This amount is calculated based on your total tax owed minus tax withholding, estimated payments, and refundable credits.
- After five months, the late filing penalty maxes out at 25%, but the late payment penalty will continue to accrue at 0.5% per month until the balance is paid, up to a total of 25%.
- When both penalties apply simultaneously, the combined maximum penalty typically reaches 47.5% of the unpaid tax.
Minimum Penalty for Filing 60+ Days Late
If your return is more than 60 days late, there’s a minimum penalty. For 2024, this is the smaller of:
- $485, or
- 100% of the unpaid tax required to be shown on your return.
It’s essential to act quickly to avoid these mounting penalties. Even if you can’t pay your full tax bill, filing your return on time will help reduce additional charges.
Avoiding an IRS Late Filing Penalty: A Step-by-Step Guide
Filing taxes can feel overwhelming, especially if you’re running out of time to meet the deadline. If you know you can’t file on time, you can avoid a late filing penalty by requesting a tax extension. To do this, submit IRS Form 4868 by the original filing deadline. This extension typically grants you an extra six months to file your return—extending the deadline to October 15.
However, it’s crucial to remember that an extension to file does not mean an extension to pay. To avoid penalties, make sure to pay any taxes you owe by the original deadline. In most cases, if you pay at least 90% of your total tax liability when requesting the extension, you can avoid the “failure to pay” penalty. This payment can come from taxes withheld from your income, estimated tax payments made during the year, or a payment submitted with your extension request. Be sure to pay any remaining balance by the extended deadline to avoid further penalties.
If you’ve missed the deadline and are facing penalties, you may qualify for tax penalty relief. The IRS offers first-time penalty abatement for eligible taxpayers. To request this relief, you’ll need to call or write to the IRS. Typically, you may qualify if you’ve had a clean compliance record—no prior penalties—in the past three years. This option applies to both “failure to file” and “failure to pay” penalties.
By taking the right steps, you can minimize or even eliminate penalties, making tax season a little less stressful.
What to Do if You Can’t Pay Your Taxes in Full
If you’re facing difficulty paying your taxes in full, don’t panic. The IRS offers several options to help you manage your tax debt, so you’re not left scrambling for a solution. Ignoring the problem will only make things worse, leading to penalties, interest, and potentially even legal actions. Instead, take action as soon as you realize you can’t pay the full amount. There are ways to make the situation more manageable, and the IRS provides options like payment plans, offers in compromise, and other alternatives that can help ease the financial burden.
1. Explore Payment Plans
One of the most common and straightforward options is setting up a payment plan with the IRS. If you can’t pay your taxes in full right away, a payment plan allows you to pay off your debt over time. This plan can be set up online through the IRS website, by phone, or by mail. Payment plans are especially helpful if you need more time to gather the funds or if you’re in a temporary financial hardship. The IRS typically offers two types of payment plans: short-term and long-term.
- Short-Term Payment Plan: This is for those who can pay off their taxes in 120 days or less. If your debt is manageable and you can repay it in this time frame, this plan might be ideal. It’s important to note that there are no setup fees, but interest and penalties will still apply.
- Long-Term Payment Plan (Installment Agreement): This option is for those who need more than 120 days to pay. It allows you to spread your payments over several months or years. A setup fee is typically charged, and there may be an additional charge if you make your payments through direct debit. While this option provides more time, the total amount you pay will increase due to ongoing interest and penalties.
Both types of plans will give you peace of mind and the opportunity to settle your debt over time, without facing aggressive collection actions.
2. Consider an Offer in Compromise
If paying your full tax debt is impossible due to financial hardship, the IRS may allow you to settle for less than the full amount through an Offer in Compromise (OIC). This option is typically for taxpayers who cannot afford to pay the full amount, and it takes into account your ability to pay, income, expenses, and asset value. While the OIC process can be lengthy and requires detailed financial information, it can be a great option if you qualify.
The IRS does not accept every offer, so it’s important to understand that this is not a guaranteed solution. However, if accepted, you may be able to pay a reduced amount and have the rest of your tax debt forgiven. It’s a good idea to consult a tax professional or use the IRS’s pre-qualifier tool online to see if you’re eligible before applying.
3. Request a Temporarily Delay in Collection
If you’re facing serious financial difficulty and are unable to pay your taxes, you can request the IRS to temporarily delay collection. This option doesn’t erase your debt but gives you some breathing room. The IRS may place your account in “currently not collectible” status, meaning they will temporarily halt their collection efforts. However, interest and penalties will continue to accrue, so this should only be a short-term solution if you expect your financial situation to improve soon.
4. Seek Penalty Abatement
In some cases, the IRS may be willing to reduce or remove penalties related to late payments or failure to file, especially if you can prove that you had a valid reason for missing the deadline. This is known as penalty abatement. The IRS might grant this request if you experienced circumstances like a serious illness, natural disaster, or other unexpected hardships. Keep in mind that penalties can significantly increase your total tax bill, so seeking abatement can help reduce the overall burden.
5. Look Into Other Assistance Programs
In addition to these primary options, the IRS also offers other forms of assistance, such as the Innocent Spouse Relief program (if you’re facing tax issues because of your spouse’s actions) or the Filing Status Change if your financial situation or family status has changed.
If you’re feeling overwhelmed, don’t hesitate to reach out to a tax professional who can guide you through your options and help you find the best solution. With the right plan, you can manage your tax debt and avoid more severe consequences. Taking action early is key to preventing further complications down the road.
Conclusion
Filing your taxes late or not at all can lead to significant financial consequences, including penalties, interest, and long-term stress. However, by understanding how the IRS calculates these penalties and exploring the various options for managing your tax obligations, you can take proactive steps to minimize the impact. Whether you need help filing your return, negotiating a payment plan, or navigating more complex options like an Offer in Compromise, having a knowledgeable team of professionals on your side is crucial.
At Austin & Larson Tax Resolution, our experienced tax attorneys and professionals are dedicated to helping individuals and businesses resolve their tax issues efficiently. Don’t let tax problems weigh you down—contact us today to discuss your situation and develop a personalized plan to regain control of your finances.
FAQs
1. What happens if I miss the tax filing deadline?
Missing the tax filing deadline can result in penalties and interest if you owe taxes. The Failure-to-File penalty is 5% of the unpaid taxes per month, capped at 25%, while interest accrues daily on the balance due.
2. Can I avoid penalties if I can’t pay my taxes in full?
Yes, you can reduce penalties by filing your tax return on time, even if you can’t pay the full amount. You may also qualify for payment plans or penalty abatement.
3. How do I apply for a tax filing extension?
You can request a six-month extension by submitting IRS Form 4868 by the original filing deadline. Remember, this extends your time to file, not to pay.
4. What is the minimum penalty for filing taxes 60 days late?
If you file more than 60 days late, the minimum penalty is either $485 or 100% of the unpaid tax, whichever is smaller.
5. Can I settle my tax debt for less than what I owe?
In some cases, the IRS may accept an Offer in Compromise, allowing you to settle for less than the full amount owed. This option considers your ability to pay, income, and expenses.
Users Also Say
How does IRS calculate the late fees for late filing?
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If an extension is not filed on time, the Failure to File penalty is 5% of the unpaid tax for each month, starting on the first day, with a maximum penalty of 25%. There is also a Failure to Pay penalty of 0.5% per month, which also caps at 25%. Additionally, interest will accrue on both the unpaid tax and the penalties.
The silver lining is that since both penalties (Failure to File and Failure to Pay) apply during the first five months, the actual Failure to File penalty effectively reduces to 4.5% per month, for a total maximum of 22.5%.
To avoid these penalties, always file your extension by the original due date, even if you’re unable to make a payment. However, if possible, make as large a payment as you can toward the expected balance due. Any overpayment can be applied to next year’s taxes or refunded.
How much penalty does IRS charge if you file your taxes late?
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Avoid late filings—request an extension to minimize or eliminate late fees. Late filing penalties can quickly add up at a rate of 5% of the amount owed, per month. If you’re over 60 days late, the minimum penalty is $100 or 100% of the tax due, whichever is lower.
If you’ve failed to file for multiple years, it’s best to reach out to a tax lawyer or expert. Be cautious of advertisers promising to erase all your tax problems. There are programs available for those who owe substantial back taxes.
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If a tax return is filed late and taxes are owed, a monthly penalty of 5% of the unpaid tax is charged, capped at 25% or five months. Additionally, there may be penalties for failure to pay taxes, estimated tax penalties, and daily compounded interest on the amounts due. Tip: Ensure you file and pay on time to avoid penalties.
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