What Happens If You Miss the Tax Deadline?

Tax deadlines mark the date by which individuals must submit tax returns and settle outstanding tax liabilities. Missing this date can lead to consequences. This guide clarifies the process and implications for those who find themselves in this situation.

Taking Action After Missing the Deadline

When a tax deadline is missed, the immediate priority should be to file the tax return as quickly as possible, even if the full tax amount cannot be paid at that moment. Submitting the return promptly helps to mitigate additional penalties, which often accrue based on the duration of the delinquency. The goal is to minimize the financial impact by addressing the oversight without delay.

It is important to distinguish between filing an extension and filing a late return. An extension provides additional time to file the return, typically six months, but it does not extend the time to pay any taxes owed. If the original deadline has passed without an extension being filed, the submission is considered a late return, and penalties may begin to apply from the original due date.

Penalties for late filing and late payment accumulate daily or monthly from the original tax due date. Each passing day without a filed return or payment can incrementally increase the total amount owed. Swift action in filing the return and addressing any tax liability limits these accumulating charges.

Understanding Penalties and Interest

Missing a tax deadline results in financial consequences, primarily penalties and interest charges. These charges are separate and serve different purposes, yet they often accrue simultaneously. Understanding each component is important for comprehending the full financial impact of a missed deadline.

The failure to file penalty, outlined in Internal Revenue Code (IRC) Section 6651, applies when a taxpayer does not file their return by the due date, including extensions. The penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late, with a maximum penalty of 25% of the unpaid tax. If the return is more than 60 days late, a minimum penalty also applies, which is either $485 or 100% of the tax owed, whichever is smaller.

A failure to pay penalty may also be assessed under IRC Section 6651. This penalty applies if a taxpayer does not pay the taxes reported on their return by the due date. The failure to pay penalty is 0.5% of the unpaid taxes for each month or part of a month that taxes remain unpaid, also with a maximum of 25% of the unpaid tax. If both the failure to file and failure to pay penalties apply in the same month, the failure to file penalty is reduced by the failure to pay penalty for that month.

Interest also accrues on underpayments of tax, as specified in IRC Section 6601. Unlike penalties, interest is not a punitive measure but rather a charge for the use of money that was due to the government. The interest rate is determined quarterly and is typically the federal short-term rate plus three percentage points. This interest compounds daily.

For example, if a taxpayer owes $10,000 and files and pays three months late, they could face a failure to file penalty of 15% ($1,500) and a failure to pay penalty of 1.5% ($150), plus accrued interest. These charges can significantly increase the total amount owed and continue to accumulate until the tax liability is fully satisfied.

If You Are Owed a Refund

In some situations, a taxpayer might miss the filing deadline but is actually owed a tax refund. When a refund is due, the failure to file penalty generally does not apply. This is because the penalty is calculated as a percentage of unpaid taxes, and if a refund is due, there are no unpaid taxes for the penalty to be based upon.

Even if a refund is anticipated, there is a deadline to consider for claiming it. Internal Revenue Code (IRC) Section 6511 establishes a three-year statute of limitations for claiming a refund. A taxpayer has three years from the date the original return was due, or two years from the date the tax was paid, whichever is later, to file the return and claim their refund.

If a taxpayer fails to file their return within this three-year period, they may forfeit their right to the refund. The unclaimed funds then become the property of the U.S. Treasury.

Options for Penalty Relief and Payment

Even after penalties for late filing or late payment have been assessed, taxpayers may have avenues for relief or options to manage their outstanding tax liabilities. These options are designed to provide flexibility for those who have faced unavoidable circumstances or are experiencing financial hardship. Understanding the available procedures is important for mitigating the financial burden.

One common method for penalty relief is requesting abatement based on “reasonable cause.” This applies when a taxpayer can demonstrate that they exercised ordinary business care and prudence but were unable to file or pay on time due to circumstances beyond their control. Examples of reasonable cause can include natural disasters, serious illness, death in the immediate family, or unavoidable absence. To request abatement, taxpayers need to provide a written statement explaining their circumstances and supporting documentation.

Another avenue for penalty relief is the “First-Time Penalty Abatement” (FTA) policy. This policy may allow for the abatement of failure to file, failure to pay, and failure to deposit penalties for a single tax period. To be eligible for FTA, a taxpayer must have a clean compliance history for the preceding three tax years. Additionally, all required returns must have been filed, and any tax due must be paid or arrangements made to pay it.

For taxpayers who cannot pay their tax liability in full, several payment options are available to prevent further collection actions. An Installment Agreement, governed by IRC Section 6159, allows taxpayers to make monthly payments. Taxpayers can apply for an installment agreement by submitting IRS Form 9465, Installment Agreement Request. While interest and penalties continue to accrue on the unpaid balance, the failure to pay penalty rate is reduced while an installment agreement is in effect.

In situations of financial difficulty, an Offer in Compromise (OIC) under IRC Section 7122 might be considered. An OIC allows certain taxpayers to resolve their tax liability with the government for a lower amount than what is owed. This option is available when there is doubt as to collectibility or when payment would create economic hardship. The IRS considers the taxpayer’s ability to pay, income, expenses, and asset equity when evaluating an OIC proposal.