What Happens if You Do Your Taxes Late? Penalties and Consequences Explained
Filing taxes late can lead to accumulating costs and long-term financial implications beyond initial penalties. Learn what to expect and how to respond.
Filing taxes might not be anyone’s favorite task, but missing the deadline can lead to more than just stress—it can cost you money and create long-term financial headaches. Many people underestimate how quickly penalties and interest can add up, or assume that if they’re owed a refund, there’s no harm in filing late.
Understanding the consequences of missing the tax deadline is important for avoiding unnecessary expenses and complications with the IRS. Even a short delay can trigger penalties that are easily preventable.
Let’s take a closer look at what happens if you file or pay your taxes late.
Late Filing Penalties
When a tax return isn’t submitted by the deadline, the Internal Revenue Service may assess a failure-to-file penalty. This penalty applies only if you owe taxes. If you are due a refund, there is generally no penalty for filing late, although delaying your filing will postpone receiving your money. According to the IRS, you typically have three years from the original due date to file and claim a refund before it is forfeited to the U.S. Treasury.
The failure-to-file penalty is calculated based on the amount of unpaid tax. The IRS imposes a charge of 5% of the unpaid taxes for each month, or part of a month, that the return is late.1Internal Revenue Service. Failure to File Penalty This calculation uses the net amount due after considering payments like withholding and applicable credits.
This penalty accrues monthly but is capped at 25% of your total unpaid tax amount, typically reached after five months. Filing even one day late can trigger the penalty for the entire first month.
For returns filed more than 60 days late, a minimum penalty applies if taxes are owed. This minimum is the lesser of a specific inflation-adjusted dollar amount or 100% of the tax required to be shown on the return, underscoring the increasing cost of prolonged delays.2Cornell Law School Legal Information Institute. 26 U.S. Code § 6651 – Failure to File Tax Return or to Pay Tax
Late Payment Penalties
Beyond filing on time, paying taxes owed by the due date is also required. Failure to pay the tax shown on your return by the deadline can result in a failure-to-pay penalty, governed by Internal Revenue Code Section 6651. This penalty applies to the unpaid amount and is based on how long the taxes remain overdue.
The failure-to-pay penalty rate is 0.5% of the unpaid taxes for each month or part of a month the tax remains outstanding after the due date.3Internal Revenue Service. Failure to Pay Penalty Like the filing penalty, it accumulates monthly but is also capped at a maximum of 25% of your unpaid tax liability.
The penalty rate can change under certain circumstances. If a taxpayer enters an approved installment agreement with the IRS, the rate may be reduced to 0.25% per month during the agreement period. Conversely, if the IRS issues a notice of intent to levy property and the tax remains unpaid 10 days after the notice, the rate can increase to 1% per month.
The IRS may grant relief from this penalty if you can demonstrate that your failure to pay on time was due to reasonable cause and not willful neglect. Reasonable cause is determined based on individual circumstances, such as unforeseen events like natural disasters, serious illness, or inability to secure records. Taxpayers typically need to submit a written request with supporting documentation.
Interest on Unpaid Taxes
In addition to penalties, the IRS charges interest on any unpaid tax liability.4Internal Revenue Service. Interest This interest compensates the government for the time the tax money remains outstanding and generally begins to accrue from the original due date until the tax is paid in full. An extension to file your return does not extend the time to pay; interest will still start from the original deadline, typically April 15th.
The interest rate is determined quarterly, based on the federal short-term rate plus three percentage points for most individual underpayments, as specified in the tax code.5Internal Revenue Service. Quarterly Interest Rates This rate can fluctuate. For example, the IRS announced a 7% annual rate for underpayments for individuals in early 2025. Current rates are available on the IRS website.
Interest is compounded daily, meaning interest is calculated not just on the unpaid tax but also on the accumulated interest from previous days.6Internal Revenue Service. IRM 20.2.1 Interest Introduction, Standards and Guidelines This causes the total amount owed to grow faster over time. Payments received are typically applied first to the tax liability, then to penalties, and finally to accrued interest.
Unlike some penalties, interest charged on underpayments is generally not waived for reasonable cause. The IRS views it as a charge for the use of money. Limited exceptions exist, primarily related to unreasonable errors or delays caused by IRS personnel in performing specific administrative tasks, but these abatements are uncommon.
Potential Enforcement Actions
If taxes remain unpaid, the IRS can employ several methods to compel payment. These actions represent more direct interventions beyond initial notices.
One significant step is filing a Notice of Federal Tax Lien.7Internal Revenue Service. IRS Publication 594, The IRS Collection Process A tax lien is a legal claim by the government against your property arising when tax is assessed, demanded, and not paid. To make this claim public and establish priority against other creditors, the IRS typically files the notice in public records. This can negatively affect your credit and make it difficult to sell or transfer property.
If the debt remains unpaid after a lien and proper notices, the IRS can proceed with a levy, which is the actual seizure of property to satisfy the debt under Internal Revenue Code Section 6331.8Cornell Law School Legal Information Institute. 26 U.S. Code § 6331 – Levy and Distraint Before levying, the IRS must meet notice requirements, including sending a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. Levies can target wages, bank accounts, retirement funds, and even physical property.9Internal Revenue Service. What Is a Levy?
Should a taxpayer fail to file a return altogether, the IRS has the authority to prepare a Substitute for Return (SFR). This return is based on information from third parties like employers and banks. Since it typically lacks taxpayer-specific deductions or credits, an SFR often results in a higher tax liability. The IRS will issue a Notice of Deficiency, giving the taxpayer 90 days to file their own return or petition the U.S. Tax Court before assessment and collection begin. Filing an accurate return, even after an SFR, can potentially reduce the assessed tax.
Significant tax debt can also affect international travel. Under Internal Revenue Code Section 7345, the IRS certifies taxpayers with “seriously delinquent tax debt” (exceeding an inflation-adjusted threshold, over $62,000 as of early 2024) to the State Department.10Cornell Law School Legal Information Institute. 26 U.S. Code § 7345 – Revocation or Denial of Passport in Case of Certain Tax Delinquencies This generally leads to denial of passport applications or renewals and can result in revocation of existing passports until the debt is resolved or specific arrangements are made.
The IRS may also use authorized private debt collection agencies for certain overdue accounts, primarily older ones. Taxpayers are notified in writing before their account is transferred. These agencies contact taxpayers to help resolve the debt, but only IRS employees can take enforcement actions like liens or levies. Payments should always be made directly to the IRS.
Finally, the IRS can issue a summons, a legal order compelling the taxpayer or a third party to provide information or testimony relevant to determining or collecting a tax liability. This tool helps gather necessary information, particularly when returns are missing or financial details are unclear.
Repercussions of Repeated Non-Compliance
A pattern of failing to meet tax obligations can lead to consequences beyond standard penalties and interest. Habitual non-compliance may cause the IRS to intensify scrutiny, potentially leading to more frequent reviews or audits. A history of repeated failures can flag an account for closer monitoring.
This behavior, especially if deemed deliberate, can shift the IRS’s focus from civil collection to potential criminal investigation. While occasional lateness usually results in civil penalties, repeated and intentional failures, such as consistently not filing, deliberately underreporting income, or concealing assets, can be interpreted as willful non-compliance, potentially triggering referral to IRS Criminal Investigation.
Willful failure to file a return or pay tax is classified as a misdemeanor under the tax code, punishable by imprisonment and fines.11Cornell Law School Legal Information Institute. 26 U.S. Code § 7203 – Willful Failure to File Return, Supply Information, or Pay Tax If accompanied by affirmative acts to mislead the IRS or conceal liability (like using false documents), the conduct may escalate to tax evasion, a felony carrying more severe penalties, including longer potential imprisonment and higher fines under Internal Revenue Code Section 7201.12Cornell Law School Legal Information Institute. 26 U.S. Code § 7201 – Attempt to Evade or Defeat Tax
Persistent non-compliance can also create hurdles elsewhere. Unresolved tax issues often make obtaining loans or credit difficult. Eligibility for government contracts can be affected, as federal regulations require contractors to disclose delinquent federal tax liabilities, potentially leading to suspension or debarment.
Maintaining professional licenses in fields like law, accounting, or healthcare often requires good standing with tax obligations. State licensing boards may suspend or revoke licenses based on failure to meet state tax requirements, impacting professional standing and business opportunities until the issues are resolved.