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.
Keep these dates in mind to ensure you get the tax refund you’re owed before time runs out.
- What is the Penalty for Not Filing Taxes at All?
- How Much is the Penalty for Filing Taxes Late?
- Are There Different Penalties for Failure-to-File and Failure-to-Pay?
- What’s Worse: Filing Late or Making Late Payments?
- Failure-to-File Tax Return Statute of Limitations
- Can I File for a Tax Extension to Avoid Late Penalties?
- Is There a Penalty for Filing Taxes One Day Late?
- Do I Get Penalized for Filing Taxes Late If I Owe Nothing?
- How Are Late Income Tax Penalties Calculated?
- Can I File for an Extension of Time to Pay My Tax Bill?
- I Can’t Pay My Tax Debt in Full. What Are My Options?
- Can I Still File My Taxes?
- Bottom Line
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 LimitationsBy 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. Want to file an extension? Not sure how? WE CAN HELP. CONTACT US TODAY
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|
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.
- When there is reasonable doubt that the tax debt owed is incorrect
- When there is doubt you could ever hope to pay off your debt in full
- When paying the total amount due would cause undue financial hardship
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Your tax debt is income taxes: Any other taxes—like fraud penalties or payroll taxes—can’t be solved with bankruptcy.