What Happens If You Miss the Tax Deadline?

Tax deadlines are an annual concern for individuals and businesses, representing the culmination of income earned and taxes owed. While widely publicized, circumstances can prevent taxpayers from meeting obligations on time. Missing a tax deadline triggers specific consequences taxpayers should understand.

Consequences of Missing the Filing Deadline

Failing to submit a tax return by the due date, or an extended due date, results in a “Failure to File” penalty. This penalty is distinct from penalties for not paying taxes owed and applies even if no tax is due. It is assessed at 5% of unpaid taxes for each month or part of a month the return is late.

The maximum penalty is 25% of unpaid taxes. If a return is over 60 days late, a minimum penalty applies: the lesser of $435 or 100% of the tax due. If a taxpayer is due a refund, there is no failure-to-file penalty, as no tax is owed.

Even when a refund is anticipated, delaying filing can mean missing the opportunity to claim it. Taxpayers typically have a limited timeframe, usually three years from the original due date, to claim a refund. Filing the return as soon as possible, even if payment cannot be made, helps mitigate or avoid this penalty.

Consequences of Missing the Payment Deadline

Not paying taxes owed by the due date, even if the return was filed on time, incurs a “Failure to Pay” penalty. This penalty is calculated at 0.5% of unpaid taxes for each month or part of a month the taxes remain unpaid. The maximum penalty is 25% of unpaid taxes.

Interest is also charged on underpayments, beginning from the original tax due date until the balance is paid in full. This interest accrues daily and is set quarterly, based on the federal short-term rate plus three percentage points.

Both failure-to-file and failure-to-pay penalties can apply simultaneously. In such cases, the failure-to-file penalty is reduced by the failure-to-pay penalty for any month both apply, ensuring the combined penalty does not exceed 5% per month. Interest charges apply to both unpaid tax and any unpaid penalties.

Steps to Take After Missing the Deadline

If a tax deadline is missed, file the tax return as soon as possible. Prompt filing can significantly reduce or eliminate the failure-to-file penalty, which is generally more substantial. Paying as much tax liability as possible, even if the full amount cannot be covered, will also help to reduce penalties and interest accruals.

For those who cannot pay their tax liability in full, several payment options are available. A short-term payment plan may allow up to 180 additional days to pay, though interest and penalties continue to accrue. An installment agreement offers monthly payments over a longer period, typically up to 72 months or six years.

An Offer in Compromise (OIC) is another option that allows certain taxpayers to settle tax debt for a lower amount than owed, particularly when experiencing significant financial difficulty. It is also crucial to respond promptly to any notices from the tax authority, as these provide information about outstanding balances and resolution paths.

Special Circumstances for Extensions and Relief

An extension of time to file a tax return does not grant an extension of time to pay any taxes owed. Filing an extension provides additional time to prepare and submit the return, typically six months, but estimated tax payments should still be made by the original due date to avoid payment penalties and interest.

Taxpayers may also qualify for penalty relief under specific circumstances, such as through “reasonable cause.” This relief is granted when a taxpayer can demonstrate that they exercised ordinary business care and prudence but were unable to meet their tax obligations due to events beyond their control. Examples of reasonable cause include natural disasters, serious illness, death in the immediate family, or the inability to obtain necessary records.

The “first-time penalty abatement” is an administrative waiver for certain penalties, including failure to file and failure to pay, for taxpayers with a clean compliance history. To qualify, taxpayers typically must not have received penalties for the three preceding tax years, have filed all required returns, and paid or arranged to pay any tax due. Requests for penalty abatement, whether for reasonable cause or first-time abatement, generally require taxpayers to contact the tax authority.