What Happens If You File Your Federal Taxes Late?

When tax day is looming, it can be a stressful time, particularly if you’re not quite ready to file your income tax return. You may even find yourself wondering what happens if you file late. If that’s the case, it’s important to make informed decisions. Filing taxes late can lead to financial penalties, interest charges, and other complications.

The specific consequences for filing late, however, aren’t always grave. They will depend heavily on your circumstances. As such, it’s often a good idea to obtain tax advice from someone who can help you understand your options.

In this article, we’ll explore some fundamental principles you’ll want to keep in mind if you’re considering filing your federal taxes late.

Penalties

If you’re likely to owe taxes, it’s usually a good idea to file your tax return on time, even if you can't pay the tax due. The Internal Revenue Service (IRS) penalties for missing the tax filing deadline are typically worse than those for not paying.

The U.S. tax code includes more than 150 penalties that cover almost any unpaid tax situation. Yet, two main types of IRS penalties generally arise in these situations.

Failure-To-File Penalty

This is a late filing penalty the IRS charges for not submitting your tax return by the deadline. It's usually 5% of the unpaid taxes for each month or part of a month that your return is late. This can add up quickly, but the maximum penalty is 25% of your unpaid taxes.

If you file more than 60 days late, the minimum penalty is either $435 or 100% of the unpaid tax, whichever is less.

Failure-To-Pay Penalty

The failure-to-pay penalty is a late payment penalty. It applies if you don't pay your taxes by the due date. It's typically 0.5% of your unpaid taxes for each month or part of a month that you're late. This penalty can also go up to 25% of your unpaid taxes.

If both failure-to-file and failure-to-pay penalties apply, the maximum amount charged for these two penalties is 5% per month.

In addition to these penalties, interest charges will accrue on the total tax amount you owe. The interest rate changes every three months, but it's usually around 3-6% per year.

Other Consequences

Filing late might also mean you miss opportunities for tax planning that could have moved you into a lower tax bracket. For example, you might miss the deadline for making certain tax-deductible contributions that could have lowered your tax rates.

It could also delay your ability to claim certain benefits or credits that depend on your tax information. For instance, late filers may experience delays in receiving the child tax credit, which is typically claimed when you file your tax return.

Tax Evasion

In extreme cases, failure to file taxes altogether can lead to criminal charges. But, this is rare. It usually happens only if the IRS believes the person or entity is intentionally evading taxes.

Extensions

If you know that you need to file late, you can file for a tax extension using a specific IRS form. There are several ways to submit this form, including by e-file and paper. However, an extension of time to file isn’t an extension to pay. You still need to estimate and pay the amount due by the original due date to avoid penalties and interest.

But once the form is filed and you’ve made the estimated tax payment, you’re automatically approved for an extension.

IRS Payment Options

The IRS also has options for taxpayers who are unable to pay their taxes in full, even if they have filed their taxes late. Two of the most common are offers in compromise (OICs) and installment agreements.

Offers in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. This may be an option if you can’t pay your full tax liability or if doing so would create a financial hardship. Obtaining an OIC is a complicated process, but it’s often a desirable course of action for many taxpayers.

Installment Agreements

An installment agreement is basically an IRS payment plan that allows you to pay your tax debt over time. If you can’t pay your taxes in full when they are due, you can apply for an installment agreement to make monthly payments. If you go this route, penalties and interest will continue to accrue on the unpaid balance, but the penalty rate for failing to pay is reduced.

Penalty Relief

In some cases, you might qualify for penalty relief. The IRS offers a few different kinds.

Reasonable Cause

If you have a good reason for filing late, the IRS may grant you penalty relief. The situation must have been serious and prevented you from filing on time.

For example, you were hospitalized or experienced a natural disaster. You’ll need to show reasonable cause for filing late, but a tax attorney can help you with this.

First-Time Penalty Abatement

If you have a history of filing and paying on time, you might qualify for penalty relief under the first-time penalty abatement policy. This penalty relief requires you to have a clean compliance history for the past three years and have filed all required tax returns or extensions.

There are also opportunities for penalty relief if you received incorrect written advice from the IRS or were otherwise granted an administrative waiver.

Refunds

If you're expecting a tax refund, you probably won't face any penalties for filing late. However, you'll have to wait longer to get your money back.

The IRS generally has three years to issue a refund. This means you’ll forfeit the refund if you don’t file your federal income tax return within this period. So, it's in your best interest to file as soon as possible.

Back Taxes

If you have unpaid taxes from a previous tax year, the IRS can apply your current year’s refund to the balance due on those unpaid taxes. This means you might not get your refund until you settle your past tax debts.

Unpaid Taxes

Whether you’re filing or paying late, or both, you’ll want to stay on top of any unpaid taxes. If you don’t, the IRS may take various actions to collect them. These can include:

• Seizing your bank accounts
• Garnishing your wages
• Placing tax liens on your property

Wage garnishment is a type of tax levy where the IRS can take money directly from your paycheck.

A lien is a legal claim against your property. A tax lien can appear on your credit report. This can negatively impact your credit score and make it harder to get loans or credit cards.

Getting Legal Help

The consequences of filing your federal taxes late can vary. Even if you owe money and can’t pay, there are several ways to avoid serious penalties. Your best course of action depends heavily on the specifics of your situation.

If filing late may be a possibility for you, consider meeting with an attorney well-versed in tax law. You can speak with them about your circumstances with a higher level of confidentiality than with other tax professionals.

They can help you understand your options and guide you through the IRS arrangement that makes the most sense for you. They’re also skilled at negotiating with the IRS and may be able to secure more favorable terms for resolution of any unpaid taxes.

Figuring out what to do right now can be overwhelming, but it doesn’t have to be. Findlaw’s directory of dedicated tax attorneys can get you started. Just click on your state to view contact information for local experts. You can also narrow your search results by city.

Enlist the help of an advocate who can work to ensure the best possible outcome for you.