The information in this article is up to date for tax year 2023 (returns filed in 2024).
The April 15th tax deadline is fast approaching. If you haven’t filed your taxes yet, there is still time. But what happens if you file taxes late?
If you’re under 65 and earned less than $13,850 (for single filers) or $27,700 (for married couples filing jointly) in 2023, you aren’t required to file a tax return and won’t be penalized. However, if you don’t file, you may miss your chance to receive a tax refund.
On the flip side, taxpayers who owe the IRS and miss the filing deadline will face two penalties. One for failing to file on time and another for not paying your owed taxes by the deadline. You’ll also accumulate interest until your balance is paid in full.
Here’s what you need to know about what you may owe and how to avoid or reduce the penalties for late taxes.
Failure-to-pay penalty
Most Americans can’t afford to cover a surprise expense with their savings. So, if you receive an unexpected tax bill and are unable to pay your full balance by the deadline, you’re not alone. But if you don’t file for an extension ahead of time, you’ll be charged a failure-to-pay penalty.
The penalty is 0.5% of your unpaid taxes for each month the payment is late, up to a maximum of 25%.
The IRS will notify you if you owe any penalties on top of your tax bill. If you can’t pay your taxes, the IRS does offer a payment plan so you can pay off your balance over time.
Failure-to-file penalty
Sometimes when people know they’re going to owe money, they put off filing until they can come up with the extra cash. This is a costly mistake. The failure-to-file penalty is much higher than the penalty for not paying on time.
The penalty is 5% of your unpaid taxes each month it’s late, up to a maximum of 25%.
Once your return is more than 60 days late, your minimum penalty becomes $485 or 100% of your owed taxes, whichever is less. Even if you can’t afford to pay your balance, always file on time, and pay as much as you can.
Interest
Your unpaid tax debt starts accumulating interest the minute you miss the tax deadline, and it builds daily. It only stops once your balance is paid in full. The interest rate is the federal short-term rate plus 3 percent.
Four ways to avoid late penalties
1. File for a tax extension
If you need more time to prepare your return, you can apply for an extension to file. A tax extension will save you from paying any failure to file penalties. You must apply for the extension by April 15th (the normal filing deadline).
Keep in mind, a filing extension does not extend your time to pay the actual taxes owed. You are still required to pay by the April 15th tax deadline. If you need more time to pay, you can apply for a payment plan separately.
2. Apply for a payment plan
If you can’t pay the full amount of your tax bill on time, pay what you can now and then you can apply for a payment plan to pay off your balance over time. Depending on your tax situation, you may qualify for a long-term or short-term payment plan:
- Long-term payment plan (installment agreement): You owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.
- Short-term payment plan: You owe less than $100,000 in combined tax, penalties and interest.
Keep in mind that interest and some penalty charges may continue to be added to the amount you owe until the balance is paid in full.
3. Request penalty relief
In some cases, you may be eligible for penalty relief (either reduced or removed penalties). If you can show you acted in good faith to meet the deadline but were unable to due to extenuating circumstances, the IRS may forgive the penalty.
You’ll need to demonstrate reasonable cause such as:
- Death or serious illness of the taxpayer or immediate family
- Inability to get records
- Natural disaster
- System issues that delayed a timely submission
You can call the toll-free number at the top right corner of your IRS notice to request penalty relief for reasonable cause. Make sure you have supporting documentation on hand. You can also request relief in writing using IRS Form 843. If you don’t qualify for relief under reasonable cause, you may qualify for relief by administrative waiver if it’s your first tax penalty.
4. File now to reduce penalties and interest
If you still need to do your taxes, file as soon as you can to minimize penalties and interest. E-filing is faster, easier and less stressful than filing by paper. Using tax software like ezTaxReturn reduces the risk of making a mistake because the program walks you through the entire process and does the calculations for you. Most people can prepare and e-file their federal returns in just 30 minutes.
Easily file your federal and state taxes online.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
