Tax season comes around quickly, and procrastinators can find themselves in dire straits when that filing deadline arrives. The process of filing your tax returns can be complex, rife with confusing forms and a variety of dates to keep track of. Don’t let this complexity be the reason you avoid filing your taxes.

Many choose to avoid filing when they know they can’t pay their tax debt, others don’t have the information they need to complete their return, while some simply forget to get their returns in by the designated date. Regardless of your reasoning, it’s important to understand the ramifications of late filing.

When it comes to tax mistakes, failure-to-file and failure-to-pay are two of the worst a taxpayer can make. Filing your tax return by the deadline is crucial, regardless of whether you owe money to the IRS. Read on to learn about the serious penalty for not filing taxes or paying on time and discover the ways you can avoid racking up large late fees.

What is the Penalty for Not Filing Taxes at All?

The penalty for not filing taxes depends on whether you owe taxes to the IRS. According to IRS.gov, there is no penalty assessed on taxpayers who are due a return but do not file on time. However, what happens if you file taxes late—or not at all—is very different for those with an outstanding tax liability.

Two penalties may apply: failure-to-file and failure-to-pay. Worse than that, though, you could face consequences more serious than monetary concerns. By never filing taxes at all, you might be convicted of tax evasion—which could amount to five years in prison and $250,000 in fines.

How Much is the Penalty for Filing Taxes Late?

The penalty for filing taxes late is charged as much as 5% for each month (or partial month) that your tax return is late. It applies to any taxes that are unpaid as of the filing deadline for the year, which always falls in mid-April; for the 2019 tax year, the deadline date is April 15, 2020.

The clock starts the day after the deadline and interest continues to accrue until you file your return, up to a maximum of 25% of your unpaid tax bill.

If you don’t file your return within the first 60 days following the tax deadline (or extension deadline), the minimum penalty is $205, or 100% of your total tax debt—whichever is less. Otherwise, the failure-to-file penalty will continue to grow up to the maximum amount, and you will still have to pay your original taxes.

Note: If you can prove to the IRS that your return was filed late for a reasonable cause, including, but not limited to, medical emergency or other unforeseen circumstance, the government agency may waive this additional penalty. Talk to a Community Tax representative for help.

Are There Different Penalties for Failure-to-File and Failure-to-Pay?

Yes; late filing and late payment penalties are not the same. If you owe taxes to the IRS, file late, and submit a payment late, you’ll be subject to penalty charges and interest for both. When both apply, the maximum amount charged for the two penalties is 5% per month.

What’s Worse: Filing Late or Making Late Payments?

The IRS considers failure-to-file a more serious issue than failure-to-pay. The latter carries a much smaller penalty at 0.5% of unpaid taxes per month up to 25%. While both can increase your overall tax debt, the penalty for not filing taxes is more severe than it would be for filing on time, but not paying your amount due.

Failure-to-File Tax Return Statute of Limitations

By law, the IRS has no time limit on collecting taxes, penalties, and interest, so you may face hefty fines that add up each year you do not file. If you fail to file your taxes, whether you’re owed a refund or you owe the IRS money, there’s no statute of limitations on tax collection. That means years down the line, the government agency has the right to assess and collect on taxes.

Only once you file your taxes, does the 10-year statute of limitations on collections begin. For that reason, taxpayers are incentivized to file their back taxes as soon as possible in order to stop interest from accruing any further.

The longer you wait, the worse the penalty will be, so time is of the essence.

Can I File for a Tax Extension to Avoid Late Penalties?

Yes! Life happens, and that mid-April deadline can sneak up on you. If you know you won’t be able to file on time, be sure to file an extension with Form 4868.  This request gives you six more months to file, meaning you don’t need to submit your tax return to the IRS until mid-October before facing late fees.

It’s important to remember that you are still required to pay your taxes by the April deadline even if you are granted an extension and avoid failure-to-file penalties. Otherwise, you may face the failure-to-pay penalty until your tax debt is settled.

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Is There a Penalty for Filing Taxes One Day Late?

What happens if you don’t file taxes on time and miss the deadline by only one day—are you subject to late fees? Yes; if you owe the IRS money, then you may be hit with a late filing penalty. However, it’s always better to be only a little late versus months late.

As mentioned, your penalty increases the longer your taxes go unfiled and once you hit the 60-day past-due mark, you will face the minimum penalty of $205 (or 100% of your tax bill, if less than $205). Even if you can’t currently pay your tax debt, it’s important to file on time to avoid extra fees.

Do I Get Penalized for Filing Taxes Late If I Owe Nothing?

Three out of every four taxpayers receive a tax refund. If you’re one of those three taxpayers who do not owe the IRS anything, you won’t face a penalty for filing late. However, the later you wait to file your tax return, the later it will take to receive your refund.

You can still file late and receive your refund up to three years after the initial deadline; however, if you haven’t filed your 2019 taxes by April 15, 2023, any unclaimed tax refund will be automatically turned over to the U.S. Treasury.

This chart outlines the tax filing deadlines for each tax year and indicates the date by which you need to file a return in order to receive your tax refund.

Tax Year Tax Filing Deadline Tax Refund Deadline/File Return By
2019 April 15, 2020 April 15, 2023
2018 April 15, 2019 April 15, 2022
2017 April 18, 2018 April 18, 2021
2016 April 18, 2017 April 18, 2020
2015 April 18, 2016 Deadline has passed

 

Keep these dates in mind to ensure you get the tax refund you’re owed before time runs out.

How Are Late Income Tax Penalties Calculated?

So, you’ve filed on time and avoided the failure-to-file penalty, but you’re unable to make your income tax payments on time. Estimating how much you’ll be expected to pay in addition to your tax debt can be complicated, as the IRS examines tax debt on an individual case-by-case basis. A Community Tax team member can help you strategize the best possible resolution to ensure you pay the least amount possible.

Can I File for an Extension of Time to Pay My Tax Bill?

Yes, but there are strict requirements that can make this solution hard to come by without the help of a professional.

You can file an extension of time for payment of tax with Form 1127. In order to qualify for this filing:

  • The IRS must receive your Form 1127 on or before the date your tax is due.
  • You’re required to provide a comprehensive statement of all your assets and liabilities at the end of the month. You must also provide an itemized list of money received and spent for the three months preceding your request for an extension to pay.
  • You must be able to show that paying the tax by the deadline would cause undue financial hardship.
  • You must be able to demonstrate that paying your tax debt would cause undue financial loss and prove that you don’t have the means to raise the money through borrowing or selling property.

I Can’t Pay My Tax Debt in Full. What Are My Options?

If you’re unable to pay your tax debt, it’s important that you still file on time, or ask for an extension to file. Those who cannot pay at least 90% of their tax debt by the original deadline will typically be subject to penalties.

The longer it takes you to file and pay, the more penalties you’ll accrue—but how are you supposed to pay off a bill that continues to rise? There are a few ways to avoid excessive penalties. A Community Tax expert can help you explore one of the following solutions:

  • Pay with a credit card: If you don’t have the money to pay for your tax debt currently, you can choose to put in on a credit card. At its core, this is essentially trading one debt for another, but choosing the right credit company could help you pay less in the long run, as you can likely qualify for an interest rate that costs less than the penalties the IRS will enforce.
  • Offer in Compromise: If it’s apparent that you’ll never be able to pay your total tax debt, the IRS may agree to an Offer in Compromise (OIC). This solution requires the taxpayer to come up with a new balance; if the IRS agrees to this offer, the remainder of your balance (anything more than the new number you’ve agreed upon) is forgiven.

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In order to qualify for an Offer in Compromise, you must continue to make payments on your debt while the IRS considers your request. If not, the OIC will be denied.  You can apply for an OIC with Form 656-B, which comes with a $186 application fee (if your income is below the specified poverty level, this application fee may be waived).

You’ll also be required to detail important financial information using one of two types of Collection Information Statement: Form 433-A (for individuals) or Form 433-B (for businesses). If you’re currently married and live in a community property state, you may be required to provide detailed data on your spouse.

The information flow doesn’t stop at these forms. The IRS will also take a deep look into your financial records, including vehicle registrations, bank records, pay stubs, and anything else they may deem important for their decision-making process.

It’s not uncommon for taxpayers to submit stacks upon stacks of paperwork for IRS review, and you may need to dig through scores of past financial statements—not unlike preparing for an IRS audit.

The IRS uses this information in order to determine your reasonable collection potential. The offer you make must equal the net realizable value of your assets along with your excess monthly income (the amount left over after your monthly necessary expenses are subtracted from your monthly total income). Keep in mind that what the IRS deems as a “necessary expense” could be much different than your definition.

If you don’t receive approval, this paperwork gives the IRS all it needs to come after you quickly for collection after the negotiation process has ceased. It’s also important to keep in mind that interest continues to accrue during the negotiation; if your request is denied, you’ll end up owing more than you did previously. These potential consequences make it crucial for you to create and submit a realistic offer in compromise request that is likely to be approved.

There are typically three instances in which the IRS will approve an OIC request:

  1. When there is reasonable doubt that the tax debt owed is incorrect
  2. When there is doubt you could ever hope to pay off your debt in full
  3. When paying the total amount due would cause undue financial hardship

It’s difficult to get approval for an Offer in Compromise, and it’s important to work with a qualified tax professional to create a realistic solution that works for both you and the government agency. Contact the professionals at Community Tax to discover the ways we may be able to effectively submit an OIC that can settle your outstanding tax balance.

  • Installment Agreements: If you can’t currently pay off your tax debt in full and would like to receive more time, the IRS may approve your request for an installment agreement.

You can apply for one of these agreements with Form 9465 Installment Agreement Request, which is used to ask the IRS for a monthly payment plan that will allow you to pay off what you owe in a pre-specified amount of time.

To qualify, your total tax debt must be less than $50,000, and you must be able to pay off your balance within 72 months. This is most often used when paying old tax debt but could be useful in failure-to-file situations that have caused your total balance to skyrocket due to penalties and interest.

However, therein lies the stipulation: the IRS will not accept an Installment Agreement Request if you’re not up to date on all current tax filings, so submitting your tax return is the first step.

While the IRS assesses your application, you must make the payments as set out in your request and you must file all taxes on time in the future; if you fail to do so, the installment agreement can be revoked and the IRS can come after you for the original tax debt owed.

We have a team of dedicated experts skilled in negotiating installment agreements with the government. We can guarantee that your tax filing status is up to date and create a plan with provisions that suit your financial needs while appeasing the IRS to help you avoid further penalties and costs.

  • Filing for Bankruptcy: This is typically a last-ditch effort for taxpayers in difficult financial straits and should only be considered as a last resort.

Only certain tax debts can be wiped out. If the following conditions are true of your tax debt, you may be able to discharge your debt with Chapter 7 Bankruptcy filing.

Always speak to a tax professional or accountant before filing for bankruptcy. This action can have lasting ramifications and it’s important to consider all available routes before deciding on bankruptcy. Here are some considerations to bear in mind:

  1. It’s been 240 days: The IRS must have assessed your income tax debt 240 days before you file a petition for bankruptcy. However, this time limit can be extended if the IRS suspended collections due to installment agreements, currently uncollectible status, or Offer in Compromise filings. In some cases, you may be able to file for bankruptcy if the IRS has yet to assess your debt.
  2. Your debt is three years old: You can only discharge tax debt through bankruptcy if your tax return was due at least three years prior.
  3. You’ve filed your tax return: You must file a tax return for the debt you wish to discharge at least two years before filing for bankruptcy. As you can see, the penalties for filing taxes late are long-spanning and could affect your financial options for years.
  4. You didn’t commit fraud or evasion: If you filed a fraudulent return or you attempted to avoid paying your taxes, you cannot file for bankruptcy.
  5. Your tax debt is income taxes: Any other taxes—like fraud penalties or payroll taxes—can’t be solved with bankruptcy.

If you’re unsure which of these solutions best suits your needs, contact the team of tax resolution specialists at Community Tax. We’re well versed in IRS negotiations, and can help you create a plan to settle your debt and make your necessary payments in the quickest time frame possible.

Can I Still File My Taxes?

Yes! Many of our clients come to us under duress with questions about what happens if you don’t file taxes on time. If you’re facing pressure from the IRS and wondering “Can I still file my taxes?”, we’re happy to go over the different ways you can submit and settle your back taxes to get yourself back into good standing.

We can help you prepare your tax returns—even from years past—and go over your finances to ensure you don’t pay more than necessary. On top of that, we can put a plan in place that keeps you on track for success so you can avoid the penalty for not filing taxes in the future.

Bottom Line

Don’t file your taxes late, and don’t fail to file. Pay attention to deadlines and file your tax return regardless of whether you can afford to pay what you owe the IRS. Working with Community Tax means never worrying about late penalties and filing mistakes. With our tax preparation and tax resolution services, you can find a professional tax program that suits your needs and builds the foundation for a lucrative financial future.