What Happens If I Miss the Tax Deadline?

Tax deadlines, such as the widely known April 15th date for most individual federal income tax returns, are a fundamental aspect of the U.S. tax system. Missing this deadline can lead to various financial consequences from the Internal Revenue Service (IRS). Penalties and interest can accumulate, significantly increasing the total tax liability. However, taxpayers can take steps to mitigate these impacts and address the situation.

Failure to File Penalty

One immediate consequence of not filing a tax return by the due date is the failure to file penalty, outlined in Internal Revenue Code Section 6651. This penalty is generally calculated at 5% of the unpaid taxes for each month, or part of a month, that a tax return is late, capped at 25% of the unpaid tax.

This penalty applies only if tax is owed; if a taxpayer is due a refund, there is typically no penalty for filing late. However, if a return is more than 60 days late, a minimum penalty applies. For tax returns due in 2024, this minimum penalty is the lesser of $485 or 100% of the tax required to be shown on the return. This highlights the importance of filing a return, even if payment cannot be made in full.

Failure to Pay Penalty

Separate from the failure to file penalty is the failure to pay penalty, also under Internal Revenue Code Section 6651. This penalty is assessed when taxes are not paid by the original due date, regardless of whether an extension to file was granted. The rate for this penalty is 0.5% of the unpaid taxes for each month, or part of a month, that they remain unpaid, capped at 25% of the unpaid tax.

When both the failure to file and failure to pay penalties apply in the same month, the failure to file penalty is reduced by the amount of the failure to pay penalty. For instance, a 5% failure to file penalty would become 4.5% combined with the 0.5% failure to pay penalty. The combined penalty for both will not exceed 5% per month. While the failure to file penalty caps after five months, the failure to pay penalty continues to accrue until the tax is paid in full, up to its 25% maximum.

Interest on Underpayments

Beyond penalties, interest is also charged on underpaid taxes. Interest begins to accrue on any unpaid tax from the original due date of the return until the tax is paid in full. This applies even if a taxpayer has an approved payment plan or qualifies for penalty relief.

The interest rate is variable and determined quarterly by the IRS. It is calculated based on the federal short-term rate plus three percentage points and compounded daily, leading to a continuous increase in the amount owed until the full balance is satisfied.

Steps to Take After Missing the Deadline

If a tax deadline has been missed, taking prompt action can help minimize additional penalties and interest.

File Your Return Promptly

The most immediate step is to file the tax return as soon as possible, even if the full amount of tax owed cannot be paid. Filing the return stops the accrual of the failure to file penalty, which is typically higher than the failure to pay penalty.

Pay What You Can

Taxpayers should pay as much of the outstanding tax liability as they can. Any payment made will reduce the amount subject to the failure to pay penalty and stop the accumulation of interest on that portion of the debt.

Explore Payment Options

For those unable to pay the full amount, the IRS offers various payment options:
Short-term payment plans
Installment agreements, which allow taxpayers to make monthly payments over a set period.
An Offer in Compromise (OIC) for situations of significant financial hardship, allowing taxpayers to settle their tax debt for a lower amount than originally owed.

Seek Penalty Relief

Taxpayers may be eligible for penalty relief under certain circumstances. The IRS may abate penalties if there is “reasonable cause” for the failure to file or pay on time, meaning the taxpayer exercised ordinary care and prudence but was unable to meet their obligations due to circumstances beyond their control. For taxpayers with a good compliance history, a first-time penalty abatement may also be available.