As a money-making person in the United States, your taxes are your own responsibility. As long as you meet certain requirements based on age, filing status, and gross income, you’re required to file your taxes every single year by the federal tax deadline: April 15th.
Note: This year, due to the COVID-19 pandemic, the tax deadline has been pushed to July 15th.
The reality is, however, that life happens and sometimes deadlines aren’t met. If you’re late to file your taxes, you may be wondering: what’s next? Do you face penalties, fines, or a punishment far worse?
Maybe you forgot to file taxes and just missed the tax deadline and now you are trying to figure out what type of trouble you’ve gotten yourself into. Or perhaps you haven’t filed in a number of years and are ready to make a change. Whatever your situation is, it’s time to face the music and get those taxes up to date.
No matter how far past the deadline you are, the most important thing to remember is that all hope is not lost. You’re already well on your way to the most important step: taking action. We’re here to help you understand the ramifications of tardy filing and guide you through the process of filing your taxes late.
What Happens if You Miss the Tax Deadline?
Your late filing game plan will vary based on your particular situation, but there are generally a few different paths to take. Lets review a few different late filing scenarios to see which best describes you, and what steps to take next.
Scenario 1: You’re going to be late.
It’s April 12th, you procrastinated on your taxes, and now your obligations are piling up. You’ve considered your schedule through the 15th, and it’s becoming crystal clear: You’re not going to make the deadline. What now?
If you’re a number of days out and simply aren’t going to be able to file on time, your best solution is simple: file for an extension. When you file for an extension with the IRS, you are granted six extra months to do your taxes, pushing your new filing deadline to mid-October without being subject to the monthly late-filing IRS Interest Rates.
It’s important to remember that the late filing extension is precisely that—an extension to file your taxes late. It is not an extension to pay your taxes late. That means that if you’re going to owe any money on your taxes, it’s your responsibility to estimate the amount due and pay it using IRS Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This form may be filed by April 15th via the Electronic Federal Tax Payment System, IRS e-file, or through paper form. Once the form is filed and the estimated tax paid, you’re automatically approved for an extension.
Scenario 2: You’re already late, but you don’t owe any money.
April 15th has come and gone, and you’ve neglected to file or pay your taxes. You’ve sat down to finally do your taxes, and it turns out you don’t owe the IRS any money on your federal taxes. In fact, it looks like they owe you money. What happens?
Well, you’re in luck. It turns out that, as long as the IRS owes you money on your federal taxes, you won’t be subject to a penalty for late filing, whether or not you asked for an extension. You can file your taxes late without tax penalties, and even collect your refund for up to 3 years after your tax-filing deadline. Past the three-year mark, you won’t be able to collect your refund—but you still won’t be subject to a penalty.
So, why even file taxes on time if you’re eligible for a refund? There’s a good reason beyond the 3-year limitation on refunds. There’s also a statute of limitations on IRS tax return audits, and as soon as you file the countdown begins. It’s wise to file sooner rather than later to avoid the stress of the potential of an impending audit.
Scenario 3: You’re already late, and you owe.
Just like before, April 15th has come and gone and your taxes remain unpaid. In this scenario, however, you owe the IRS on your taxes, rather than the other way around. If this describes you, you may be subject to two different IRS late filing penalties.
- Failure-to-pay Penalty: If you’ve failed to pay your taxes, you may be subject to a penalty on any unpaid portion of your federal taxes. The penalty totals 0.5% of your unpaid taxes for each month that your taxes go unpaid, but won’t exceed 25% of the taxes you owe. For instance, if your taxes are paid 6 months late, your penalty will total 3% of the unpaid amount. At 12 months late, you’ll owe 6%. However, once you surpass the 50 month mark, you’ll max out your penalty and owe a flat rate of 25% of the unpaid amount. Note that this penalty applies even if you’ve filed your taxes. As long as you haven’t paid the amount you owe, you’re eligible.
- Failure-to-file Penalty: If you’ve failed to file and failed to pay your taxes by your filing deadline, you will be subject to a penalty of 5% of your unpaid tax amount per month, again up to 25% of the unpaid amount. This penalty accrues much more quickly than the failure to pay penalty. You’ll max out to the 25% penalty by month five.
Note that you can be subject to one of both of these penalties. If you’ve maxed out both penalties, you’ll pay a flat rate of 50% on your unpaid amount (25% for late filing and 25% for late payment).
How to File Late Taxes
Now that you understand the penalties that you face, it’s time to take action in righting your wrong. The process for filing your late taxes isn’t too dissimilar to filing taxes on time. First, you need to gather your necessary tax forms. If you’re missing any, you may still be in luck. The IRS maintains a library of copies of all tax documents associated with your social security number for up to 4 years. Simply request that your documents are mailed to you, and you’ll receive a transcript of your tax documents.
The next step is to file your taxes. You can either use a tax preparation software or file directly with the IRS using prior year tax forms available on the IRS website. Note that if you’re using a transcript from the IRS to file, you’ll also need to include IRS Form 4852, Substitute for Form W-2, Wage and Tax Statement, or
Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
How to Pay Off Tax Debt
Once you’ve filed your late taxes and calculated your total tax debt, it’s time to create a plan for paying it off. When it comes to paying off debt, you’re not completely on your own. The IRS offers a few different options to ease the payment of your tax debt.
First, you can set up a monthly payment plan with the IRS to pay off tax debt. This can allow you 72 months to pay off debt, as long as your total debt is under $50,000. To do so, file IRS Form 9465, Installment Agreement Request. This will use your total debt owed and divide it by 72 to determine your monthly payment. If you owe $10,000 or less, your request will usually be automatically approved.
If you’ve failed to pay your taxes, you may qualify for an IRS penalty abatement to relieve you of all tax penalties. In order to qualify, you need to prove that there was reasonable cause for your misgivings. This may include things like unforeseen medical expenses, natural disasters, or other emergencies. If you have a good history of paying and filing your taxes on time and this is your first failure to pay or file, you may qualify for IRS First-Time Penalty Abatement. If you’re filing late and you foresee a penalty in your future, you can file a request for a penalty abatement along with your late tax filing. If you’ve already been assigned a penalty, you can send a letter to the IRS requesting a penalty abatement.
If you are unable to pay your full tax debt, you may even qualify for an Offer in Compromise, which allows taxpayers to come to an agreement with the IRS to pay less than the total owed amount. If the IRS believes forced collection would cause undue financial hardship, or even doubts the accuracy of your tax debt, you may be eligible.
No matter your particular situation, it’s important to remember that you’re not on your own. The tax professionals at Community Tax are standing by to provide you with back tax help. Call us today at 1-888-676-4319 and we’ll help you find the right solution to pay off your tax debt.