What happens if I file my taxes late?
Key takeaways
According to surveys, tax procrastination is a huge reason why many Americans file their tax returns late or at the last minute each year.
The maximum late filing fine can’t exceed 25% of overdue taxes.
The best option to ensure you’re not late with your taxes next year is to work with a financial advisor ahead of time.
Most of the time, the failure to pay a penalty is lower than the failure to file the penalty, so you should probably file even if you can’t pay the tax.
Until you fully pay your tax credit and you owe taxes, the IRS charges interest and penalties with reasonable cause.
Don’t miss the deadline of April 18, and make sure your tax credit is fully paid and paid timely.
The extension period for resident aliens could be anywhere from an automatic two-month extension to as long as an additional 180 days to file, so if you’re abroad for a long time, including in disaster scenarios, this extension period might offer you a way out.
If your adjusted gross income is $73,000 or less yearly, you can use one of the IRS’s free federal tax options, including free tax-preparation software, to file your return online.
If you can’t pay your taxes or penalties in full by the required tax day, pay what you can now and ask for an installment arrangement with the IRS.
If the IRS thinks you are trying to avoid paying taxes when you’re not filing a tax return, they can send you to jail.
If you decide to ignore your taxes owed, you will see an increase in your penalty amount, which is why it’s essential to consult a qualified tax expert or to start repaying your debt to limit penalties if you can’t locate your documents.
How do I file taxes from prior years?
It comes around every year like clockwork, and although we know when to expect that dreaded bill, many of us still file our taxes late. It’s doubtful that any of us actually plan to file our taxes late, but sometimes it is out of our control. So what happens when we file our tax return past the required filing date?
This article will aim to answer all of the questions you might have about late tax filing while providing you with some valuable advice so you can better prepare for next year’s taxes.
Why do people file their taxes late?
According to surveys, tax procrastination is a huge reason why many Americans file their tax return late or at the last minute each year. As many as 33% is the estimated number of late filers. What were their reasons for procrastination? First, about 40% of those filing late reported that they found their taxes too time-consuming, 22% found it too stressful, 22% want to make sure it’s correct, 10% feel no rush because they won’t be getting a refund, and 6% are worried they’ll owe money.
In fact, many people miss the tax deadline, resulting in a late payment penalty. The minimum penalty for a failure to pay the penalty timely is 5% of unpaid taxes for each month or portion of the same month a tax return is late is the Failure to pay Penalty. The maximum late filing penalty can’t exceed 25% of overdue taxes. In addition, the IRS interest rate is 6% per year, compounded daily. Therefore, the failure to file can cause a significant pay penalty rate. Moreover, your unpaid tax owed will significantly increase.
It’s interesting to point out here, too, that, although many were afraid to file or found it too time-consuming, the average federal refund in 2020 was $2,707. That’s almost 3 grand that the government has likely overtaxed you throughout the year, and they get free reign to spend that money interest-free until you do your taxes.
The longer you wait, the longer they can utilize your money. If that’s not reason enough to file your taxes early, the penalty rate for a failure to file penalty you’ll likely get stuck with might be. If you decide to claim your back taxes, you can get your refund through a direct deposit from the IRS, if there are refundable credits.
How much money will I owe for filing taxes for my tax year late?
If you file your taxes late or are subject to late filing, you won’t just receive a friendly reminder email. It’s called a Failure to File penalty, and it can be a doozy, especially if you have a large amount of tax owing. This amount is a percentage of the taxes you would have owed if you filed on time and how late you filed your taxes.
In each case, when you miss the tax filing deadline, you still have to pay taxes. In this case, you should talk directly to the internal revenue service or contact a tax professional to ensure you get a tax extension or a reduction in your penalty amount.
If you’ve since filed an extension of your due date and you still didn’t file in time, that time factor counts from the original filing date – not the extended one.
What is my best option?
The best option to ensure you’re not late with your taxes next year is to work with a financial advisor ahead of time. This way, when that day comes around, you’ve already filed and, hopefully, are enjoying a much-needed refund.
Do you need help ensuring you don’t get caught with an unexpected tax bill next year? Our experts are leaders in tax planning and time management. Reach out for a conversation with Ideal Tax today.
What if I owe the IRS money but can't pay?
If you are in this situation, you can do some of the following:
- Installment Agreements
- Offer in Compromise
You can also file your return and wait for the IRS to send you a bill, but don’t be shocked if the government implements interest and penalties. Most of the time, the failure to pay a penalty is lower than the failure to file a penalty, so you should probably file even if you can’t pay the tax.
Be aware of the repercussions of late payments since you start to owe interest to the IRS from the tax day you missed. Until you fully pay your tax credit and you owe taxes, the IRS incurs interest and penalties with reasonable cause.
Child tax credit and Earned Income Tax Credit
A child tax credit is most families automatically get $250 and otherwise $300 per child per month, without having to do anything. This credit can cause your debt to become a less significant burden. In addition, you might also qualify for earned income tax credit. To find out more about tax relief, visit the government’s page on child’s credit.
So, in short, yes, there are ways to avoid a failure to pay a penalty from the IRS, but there are strict qualifications, and the chances you’ll qualify are rather low.
File to get fines and interest reduced
To avoid penalties and interest, taxpayers must file their returns and pay any taxes they owe as soon as possible. Getting more time to file does not give you more time to pay. You get an extra six months with a filing extension, and the new filing deadline is October 17.
If you don’t pay your taxes by April 18, you will have to pay penalties and interest. Interest will be added to the taxes and penalties till the total amount is paid. Don’t miss the deadline of April 18, and make sure your tax credit is fully paid and paid timely.
However, if you reside in Maine or Massachusetts, you get an additional day off since both states celebrate Patriot’s Day holiday on April 18 and give their residents an extra day off for a holiday. In addition, because of the timing of the weekend and the event of the Emancipation Day holiday in Washington, D.C. on April 15, taxpayers had until April 18 this year. However, these are exceptions for a certain tax year, and in most cases, it’s best to just stick to the official deadline.
The extension period for resident aliens could be anywhere from an automatic two-month extension to as long as an additional 180 days to file, so if you’re abroad for a long time, including in disaster scenarios, this extension period might offer you a way out. When residing abroad, don’t forget there is the option to e-file your tax return. However, we’d strongly advise keeping April 18 as the official deadline.
It’s important to file and pay as much as possible because the penalties for filing late and paying late add up quickly.
Even if taxpayers can’t pay the entire amount of taxes owed right away, they should still file a tax return to avoid possible late filing penalties. When taxpayers owe the IRS but can’t pay, they have several options.
In most cases, the inability to file a penalty is 5% of the tax owed for every month or portion of a month that a tax return is late, up to a maximum of five months. This total amount is reduced by the amount of the failure to pay the penalty for any month where both penalties apply. If a tax return is submitted upwards of 60 days after the due date, the lowest penalty is $435 or 100% of the back taxes, whichever is less.
For most people, the failure to pay the penalty is 0.5% of the unpaid tax every 30 days or part of a month until the tax is paid in full or until 25% is paid. The rate is not set in stone. See the ‘penalties page’ on IRS.gov for more information.
Taxpayers may get penalty relief if they have filed and paid their taxes on time for the past three years and meet other essential requirements, such as spending, making plans to pay any due tax, or filing a tax return. Visit the first-time penalty abate page on IRS.gov for more information.
It's better to file late (and pay late) than not.
You might think, “I missed the deadline already, so what are a couple of extra weeks?” But it’s best to send your tax return as soon as possible (we’ll explain why in a minute). So try to file the next day or as quickly as possible.
If your adjusted gross income is $73,000 or less yearly, you can use one of the IRS’s free federal tax options, including free tax-preparation software, to file your return online. If you make more than $73,000, you can still file online using the IRS’s free electronic forms, but you’ll need to know how to do taxes if you choose this route.
You won't be fined if you're getting a refund.
If you’re expecting a tax refund, the good news is that the only thing that will happen if you send in your return after the deadline is that your refund will be late. You should still file as soon as possible, but you can still get your refund three years after the deadline. Will the IRS find out if you don’t file on time?
Since millions of tax filings are sent to the IRS at the last minute, you may question if they will even notice that yours is a day late.
Why take a chance? That’s the real question you should be asking yourself. Also, if you mail in your return through the postal service, the IRS can see the date the envelope was postmarked, so you could get a small bill if you’re a few days late. Just take a part of a month to pay taxes, and avoid a late filing penalty.
So, if you’re going to be late with filing your taxes, even by just one day, make sure to file for an automatic extension. You’ll still have to fill out and file as much of your 1040 as possible and pay your estimated taxes, but you’ll have until mid-October to finish.
Consider a Payment Plan
If you can’t pay your taxes or penalties in full by the due date, pay what you can now and ask for a payment plan. When you set up a payment plan, you may be able to reduce future fees. When setting up this kind of plan, you directly negotiate a monthly payment amount. After having agreed with the IRS, you will no longer suffer from:
late filing penalty
late payment penalty
failure to file penalty
What happens in the case of late payment?
Late payment causes you to pay more taxes simply, and the failure to file before the tax deadline results in additional penalties and interest. The pay penalty also compounds with the interest, and you’re going to owe taxes to the point where there is no way out. Simply stick to the filing deadline, and pick a part of a month to assess your financial situation, and assess your tax owed to the IRS.
What will happen if you remain to have unpaid taxes?
Remember that if you file your taxes late, you will have to wait longer to get your tax refund and any payments, like the EITC, if you are eligible. If you don’t file your taxes for more than three years, you won’t be able to get that tax refund or EITC.
If your taxes are late, the IRS will file a tax return for you and tell you how much it thinks you owe. It won’t look for exemptions and tax credits that you could generally use to lower your tax bill. We call that a substitute return.
Also, if you are self-employed and don’t file your taxes, the money you make doesn’t go into your Social Security account. This means that your benefits will be less in the future. Also, if you decide to apply for a mortgage or another loan, they usually want to see your most recent tax returns.
The IRS can also take your wages and property such as refunds you’re owed, other government payments like Social Security, bank accounts, your car, and even your house.
It gets worse. If the IRS thinks you are trying to avoid paying taxes when you’re not filing a tax return, they can send you to jail. But the good news is that it doesn’t happen very often. It says that the IRS rarely uses criminal charges against taxpayers. The IRS doesn’t have enough money to go after criminal charges against everyone who doesn’t file.
So, when the IRS uses criminal laws against a taxpayer, it ensures it’s because it will get a lot of attention or because the taxpayer owes a lot of money in taxes. This way, the prosecution gets the most attention possible. When other taxpayers see how these cases are handled, it makes them want to file their taxes, so they don’t end up in jail.
However, the IRS owes responsibility for relieving debt, and late payment combined with a reasonable cause can cause the IRS to place a federal tax lien on your property. Sometimes, the IRS might seize property. In short, with the failure to file, penalties apply. If you decide to ignore your taxes owed, you will see an increase in your penalty amount, which is why it’s important to consult a tax professional or to start repaying your debt to limit penalties
You can't locate your documents.
You might not have all the documents you need to finish your tax return. Talk to your employer if you lost your W-2 or never got one. Sometimes, it can be wise to e-file a tax return. The IRS has made it possible for taxpayers to e-file certain tax returns for the current tax year, like form 1040 SR, and form 1040 X.
You haven't filed in the past year or more
If you haven’t filed your tax return in a year or more, you should do it as soon as possible. This can help you pay fewer fees and interest on your unpaid tax. In addition, it is a good idea to avoid a failure to file in the future and limit your chances of getting another failure to file a penalty.
Either take a part of a month to work towards filing your taxes or consult with a tax professional. Visit the IRS.gov website to get the documents you need to file for the appropriate tax years. Consult one of the tax professionals of Ideal Tax solutions to assist you and give tax advice for paying your taxes and dealing with IRS issues.
Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.
