What Happens If You Miss the Tax Deadline?
Navigating a missed tax deadline? Get clear guidance on what to expect and how to effectively manage your tax obligations.
Tax deadlines are a fundamental aspect of the U.S. tax system. Adhering to these deadlines is important for maintaining compliance with federal tax laws. The system relies on timely filing and payment to ensure the orderly function of revenue collection and financial administration. Taxpayers are generally expected to submit their tax returns and any associated payments by the designated due dates each year.
Consequences of Missing the Deadline
Failing to meet tax deadlines can result in various financial repercussions, including penalties and interest charges. The Internal Revenue Service (IRS) imposes distinct penalties for not filing on time and for not paying on time, both of which can significantly increase the total amount owed.
The failure to file penalty is typically 5% of the unpaid taxes for each month or part of a month that a tax return is late. This penalty can accumulate up to a maximum of 25% of the unpaid taxes. For instance, if a return is 60 days late, the minimum penalty is the lesser of $435 or 100% of the tax required to be shown on the return. This penalty applies to individuals and businesses that fail to submit forms like Form 1040 or Form 1120 by their respective due dates.
The failure to pay penalty applies when taxes are not paid by the due date. This penalty is generally 0.5% of the unpaid taxes for each month or part of a month the balance remains unpaid. Like the failure to file penalty, it is capped at 25% of the unpaid taxes. If both penalties apply in the same month, the failure to file penalty is reduced by the amount of the failure to pay penalty, ensuring a combined monthly penalty that does not exceed 5%.
Interest also accrues on any underpayments from the original tax due date until the payment date. This interest applies even if an extension to file was granted. The interest rate for underpayments is determined quarterly and is set at the federal short-term rate plus 3 percentage points.
Actions to Take After Missing the Deadline
If a tax deadline has been missed, taking prompt action can help mitigate the financial impact. The immediate priority is to address the outstanding tax obligations as quickly as possible to minimize additional penalties and interest.
File the tax return without delay, even if the full amount owed cannot be paid. The penalty for failing to file is much higher than the penalty for failing to pay, often ten times greater per month. Submitting the return promptly reduces the escalating failure-to-file penalty. This action also allows the IRS to assess the correct tax liability, which is a necessary step before considering payment options.
Taxpayers should pay as much of their tax liability as they can afford to reduce further penalties and interest. Penalties and interest are calculated on the unpaid balance, so any payment made will decrease the base amount subject to these charges. Making a partial payment demonstrates an effort to comply.
Late tax returns can be submitted using various methods, including tax software, through a tax professional, or by downloading and completing official IRS forms. The completed return should then be mailed to the appropriate IRS address, or e-filed if using eligible software or a professional service. After the return is processed, the IRS will typically send a notice, such as a CP14, detailing the assessed penalties and interest.
Options for Taxpayers Unable to Pay
Taxpayers who owe money but cannot afford to pay their tax liability have several relief options available through the IRS. Each option has specific eligibility criteria and application processes.
An Installment Agreement, also known as a payment plan, allows taxpayers to make monthly payments over a period, typically up to 72 months. Taxpayers can apply for an installment agreement online via the IRS Online Payment Agreement application or by submitting Form 9465. There might be a setup fee, which is often lower for online applications and for low-income taxpayers. Individuals owing $50,000 or less in combined tax, penalties, and interest may qualify, provided they have filed all required returns.
An Offer in Compromise (OIC) allows certain taxpayers to settle their tax liability for a lower amount than what is owed. This option is generally considered when taxpayers face significant financial hardship or when there is doubt about the collectibility of the full amount. Eligibility for an OIC typically requires the submission of Form 656, along with detailed financial information on Form 433-A for individuals or Form 433-B for businesses. These forms provide a comprehensive overview of assets, liabilities, income, and expenses to help the IRS determine a taxpayer’s ability to pay.
Penalty Abatement may be an option if a taxpayer can demonstrate “reasonable cause” for failing to file or pay on time. This relief applies to penalties, not the underlying tax or interest, and requires specific circumstances beyond the taxpayer’s control. Examples of reasonable cause include serious illness, natural disasters, or the destruction of records. The IRS evaluates these requests on a case-by-case basis, requiring taxpayers to show they exercised ordinary care but were still unable to meet their obligations.