If you file your taxes late, you’ll incur financial penalties such as a late payment or failure-to-file penalty. Because these penalties can add up to thousands of dollars, it’s best to keep an eye on this due date. However, if you do miss the date or think you will, there are ways to minimize the cost of tax penalties and interest.
A new year means a new tax season. You may start receiving your tax forms in the mail by late January, with a deadline to file your income tax return in April. That deadline always comes quicker than expected, so it’s best to start preparing now. But what happens if you don’t file on time?
In this article, we’ll cover what happens to your tax return if you file late, the resulting tax penalties, and how to potentially minimize the burden of mounting late fees.
When is my tax return due?
The federal tax filing deadline is April 15, unless that date falls on a holiday or weekend. However, the IRS has previously adjusted due dates because of the pandemic.
If you’ve been taking advantage of the extended filing times in previous years, be sure to pay attention to the tax deadline this year.
What happens if you file your tax return late?
If you fail to file an income tax return by the due date and you owe taxes, then you’ll first pay a failure-to-file penalty. This penalty is 5% of your unpaid taxes due for each month (or partial month) your return is past due. The late filing penalty starts accruing the day after taxes are due.
The good news is that your maximum late filing penalty cannot exceed 25% of your taxes due. For example, if you owe $1,000 in taxes, then you can’t be charged more than $250 in late filing penalties.
However, this maximum changes if your taxes are more than 60 days late. In that case, you’ll pay a minimum penalty of $435 or 100% of your tax bill, whichever is less.
What happens if you pay your taxes late?
Just as there’s a penalty for filing your tax return late, there’s a separate penalty for paying your tax bill late. The failure-to-pay penalty is 0.5% for each month or partial month that your tax payment is late, up to a maximum penalty of 25% of your tax bill.
Not only will you pay the penalty for a late tax bill, but you’ll also owe interest at the federal short-term rate plus the IRS’s quarterly rate. (As of the end of 2021, this rate was 3%.) Interest accrues from the day after tax payments are due until you’ve paid your tax bill in full.
How to avoid penalties for filing and paying your taxes late
The penalties for failing to file and pay taxes on time can add up to hundreds — or even thousands — of dollars in fees. For that reason, it’s critical that you file and pay your taxes on time.
However, if something comes up that prevents you from doing so, there are a few steps you can take to avoid or reduce your penalties.
File an extension
The IRS offers an extension on federal tax returns. You can generally request an additional six months to file, which would allow you to file a tax return as late as October.
However, there’s a catch: the extension gives you more time to file your taxes, but not more time to pay. If you owe taxes on your return, you’ll still have to pay the bill by the April deadline to avoid paying a penalty.
If you can’t file or pay the taxes owed by the due date, it’s probably still worth filing the extension. While you’ll still pay penalties and interest on your back taxes, you’ll avoid the late filing penalty.
What if I can’t afford to pay my taxes?
Unfortunately, you can’t use this as an excuse to not file your taxes. Despite the number of Americans they keep track of, the IRS keeps a sharp eye on who has yet to file or pay their taxes.
Luckily, you do have a few options available to help you with this. In addition to an installment plan, you can ask the IRS for an offer in compromise (we’ll get more into this later) or a Currently Not Collectible status.
You can also reach out to tax relief companies who specialize in helping people more than $10,000 in tax debt. Start with the list below and see if you can find relief for your tax debt.
Apply for a first-time penalty abatement waiver
First-time penalty abatement (FTA) is an IRS policy that offers relief to taxpayers for certain financial penalties they’ve accrued. This FTA waiver benefits taxpayers who have a history of paying their taxes on time but have acquired certain penalties. This article provides an in-depth guide on what a first-time penalty abatement waiver is and how to apply.
Run the numbers to see if you’re eligible for a refund
The penalty for filing your tax return late applies only if you owe the federal government money. If you’re due a tax refund, the IRS won’t charge you any penalties for filing late.
You can use online tax software to see if you’re eligible for a refund. This ensures you don’t have to worry as much about the deadline.
Pay what you can
If you can’t pay your entire tax bill, it’s worth paying whatever you can. The penalties and interest can add up quickly, and paying down the balance will help reduce the extra charges you’ll owe.
The IRS offers both short-term and long-term payment plans depending on the amount you owe and your ability to pay. However, be aware that the IRS charges for this service.
Consider borrowing money
The IRS recommends that you consider borrowing money to pay your tax bill if you can’t pay it in full by the due date. Depending on your credit situation, you can often borrow money at a lower rate than the IRS interest and late payment penalty rate.
Visit our personal loans comparison tool to see what interest rate you might be eligible for or check out the offers below.
Show reasonable cause
The IRS may waive your failure-to-file and failure-to-pay penalties if you can show reasonable cause for filing and paying your taxes late. You’ll have to show that filing and paying late wasn’t due to willful neglect. We also recommend you make a partial payment as soon as possible as a show of good faith.
To explain why you can’t file your taxes, write a tax penalty waiver letter. Use this template as a writing guide for the letter.
Request an offer in compromise
The IRS may be willing to settle your tax bill for less than you owe if you request an offer in compromise. You can generally settle for a lower amount if you can’t pay your full tax bill or if doing so would create a financial hardship.
Keep in mind, you’ll have to provide detailed information about your income, expenses, and assets so the IRS can determine whether you can’t afford to pay your tax bill.
Filing a past-due tax return
If you have unfiled tax returns from any year, it’s worth filing them as soon as possible for a couple of reasons.
- Avoid further penalties and interest. If you haven’t filed your taxes and you owe money, filing as soon as possible can help you avoid more penalties and interest than you’ve already racked up.
- Get your refund. There’s no penalty for filing your taxes late if you’re owed a refund. However, not filing means you’re missing out on money from the IRS. Your refund is money that you earned throughout the year and overpaid in taxes, meaning it’s in your best interests to file as soon as possible if you’re owed a refund.
What happens if you file your taxes late and you don’t owe?
Occasionally, you might find that you’ve paid exactly the right amount of taxes. You don’t owe anything, but you also aren’t getting a refund. In that case, you won’t pay any penalties for filing your taxes late since you don’t owe the IRS any money.
Do you lose your tax refund if you file late?
It is possible to lose your refund if you wait too long to file your taxes. However, you don’t have to worry about that happening if you’re filing late the same year.
How far back can you file taxes and get a refund?
You can get your tax refund as long as you file your tax return within three years of its original due date. Once that three-year window has passed, you can’t get your tax overpayment, nor can you take advantage of any credits you would have been eligible for.
For example, if you never filed your taxes in 2017 but were owed a tax refund, you lose the opportunity to collect this refund in 2021.
- Tax returns are usually due by April 15, but the deadline may change if the due date is on a holiday weekend.
- If you file your taxes past the deadline and you owe money, you’ll pay 5% per month that your taxes are past due, up to 25%. Filing more than six months late means the penalty increases to at least 100% of your tax bill.
- If you pay your tax bill late, you’ll pay a penalty of 0.5% for each month your payment is past due. This is in addition to interest paid at the federal short-term rate plus the quarterly rate (currently set at 3%).
- There are several ways to avoid or reduce your tax penalties. This includes filing an extension, paying part of what you owe, borrowing money to cover your return, and being able to show reasonable cause or financial hardship.
File your taxes using the right tools
You could be on the hook for large financial penalties if you fail to file or pay your taxes on time. To avoid these charges for an unpaid tax bill, start preparing your filing early.
Still haven’t filed your taxes? Visit our tax preparation comparison tool to learn about the different software available and decide which is right for you.
View Article Sources
- How to File Your Federal Taxes — USA.gov
- Filing Past Due Task Returns — IRS
- How to Get Free Tax Help — SuperMoney
- Ultimate Guide to Unfiled Tax Returns — SuperMoney
- Best Tax Preparation Software of 2022 — SuperMoney
- How To File Taxes in 2022: Complete Guide — SuperMoney
- How to Guarantee You Will Get a Tax Refund Next Year — SuperMoney