What Happens If You Miss the Tax Deadline?
Missed the tax deadline? Get a clear understanding of the ramifications and how to address them responsibly.
Tax Day, typically April 15th, marks the annual deadline for submitting tax returns and settling any tax obligations. While many individuals meet this deadline without issue, some may find themselves unable to file or pay on time. Missing this deadline can lead to various financial consequences.
Understanding Penalties for Late Tax Actions
Failing to file a tax return by the due date, or the extended due date, can result in a failure-to-file penalty. This penalty is 5% of the unpaid taxes for each month or part of a month that a return is late, with a maximum penalty of 25% of your unpaid taxes. If the return is more than 60 days late, the minimum penalty is either $485 or 100% of the tax owed.
A separate penalty applies for failing to pay taxes by the due date, known as the failure-to-pay penalty. This penalty is 0.5% of the unpaid taxes for each month or part of a month that taxes remain unpaid. The maximum failure-to-pay penalty is also 25% of your unpaid taxes. The failure-to-file penalty is significantly more substantial than the failure-to-pay penalty, underscoring the importance of filing a return even if payment is not immediately possible.
Interest also accrues on any underpaid tax from the original due date until the date of payment. The interest rate is determined quarterly and is the federal short-term rate plus 3 percentage points. This interest applies not only to the unpaid tax balance but also to any accrued penalties, compounding the financial impact of late actions.
When a taxpayer is due a refund, there is no penalty for failing to file their tax return by the deadline. However, individuals must file their return within three years from the original due date to claim their refund.
Taking Action After Missing the Deadline
If you have missed the tax filing deadline, it is important to file your tax return as soon as possible to minimize the failure-to-file penalty. You should prepare your return using the same forms and instructions you would have used for a timely filing. The return can be submitted electronically through approved software or by mailing a paper return, which should be done promptly after completion.
For taxpayers who owe money and missed the payment deadline, various options exist to settle their tax liability. Payments can be made directly from a bank account through IRS Direct Pay, or via the Electronic Federal Tax Payment System (EFTPS). Other methods include paying by debit or credit card through a third-party processor, or sending a check or money order through the mail.
If you cannot pay your full tax liability immediately, the IRS offers several payment arrangements. A short-term payment plan may provide up to 180 additional days to pay your tax liability in full, though interest and penalties still apply. For those needing more time, an installment agreement allows taxpayers to make monthly payments for up to 72 months. To set up an installment agreement, you generally must owe $50,000 or less in combined tax, penalties, and interest for individuals, or $25,000 or less for businesses.
Another option for taxpayers facing significant financial hardship is an Offer in Compromise (OIC). An OIC allows certain taxpayers to resolve their tax liability with the IRS for a lower amount than what they originally owe. This option is generally considered when the taxpayer’s ability to pay the full amount is questionable due to their current financial situation.
Exploring Options for Penalty Relief
Taxpayers who anticipate needing more time to file their federal income tax return can request an extension using Form 4868. Filing this form by the original tax deadline typically grants an automatic six-month extension to file. It is important to remember that an extension to file does not extend the time to pay any taxes owed; payment is still due by the original deadline, and interest and penalties may accrue on unpaid amounts.
Under certain circumstances, taxpayers may qualify for penalty relief due to reasonable cause. Reasonable cause refers to situations beyond the taxpayer’s control that prevented them from meeting their tax obligations, such as a serious illness, a natural disaster, or unavoidable absence. To request abatement based on reasonable cause, taxpayers generally need to submit a written explanation or use Form 843, detailing the specific facts and circumstances that prevented timely compliance.
The IRS also offers a First-Time Penalty Abatement waiver for specific penalties, including failure-to-file and failure-to-pay penalties. To qualify, taxpayers typically must have a clean compliance history for the three preceding tax years, meaning they have no prior penalties for late filing or payment. This administrative waiver provides relief for taxpayers who have generally complied with tax laws but experienced an isolated instance of non-compliance.