What Happens When You Miss the Tax Deadline?

Missing the federal tax deadline, April 15th for individual income tax returns, has consequences. While an extension grants more time to file, it does not extend the time to pay any taxes owed.

Penalties and Interest Applied

The Internal Revenue Service (IRS) assesses penalties and interest when a tax return is not filed or taxes are not paid by the due date. Two penalties are applied: the failure-to-file penalty and the failure-to-pay penalty.

The failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month that a return is late. This penalty is capped at 25% of your unpaid taxes.

The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid. This penalty has a maximum of 25% of your unpaid taxes. 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 amount of the failure-to-pay penalty for that month. The combined penalty for both does not exceed 5% per month.

Interest accrues on any unpaid taxes and penalties from the original due date until the payment date. The interest rate is determined quarterly and is the federal short-term rate plus three percentage points, compounded daily.

If you are owed a refund, you will not face failure-to-file or failure-to-pay penalties, as these penalties are based on unpaid tax. You must still file your return to claim your refund. Filing an extension of time to file your return prevents the failure-to-file penalty, but it does not prevent the failure-to-pay penalty or the accrual of interest on any taxes owed.

Actions After Missing the Deadline

The first step involves gathering all necessary financial documents to prepare your tax return. This includes income statements such as Forms W-2 from employers, Forms 1099 for other income (e.g., from investments, self-employment, or government payments), and any records for deductions or credits you plan to claim.

You can use tax software, work with a tax professional, or complete paper forms. After preparing your return, submit it to the IRS. Electronic filing is the fastest method, but mailing a paper return is an option.

Even if you cannot afford to pay the full amount of tax you owe, you should still file your return. Filing your return on time, even without payment, prevents the larger failure-to-file penalty from accumulating. The failure-to-file penalty is significantly higher than the failure-to-pay penalty.

If you owe taxes and cannot pay the full amount immediately, the IRS offers several payment options. These include direct bank payments, debit/credit card, or mail. If you require more time to pay, you might be eligible for a short-term payment plan (up to 180 days) or a long-term installment agreement where you make monthly payments. These arrangements help manage your tax liability, though interest and penalties will continue to accrue until the balance is paid in full.

Penalty Abatement and Waiver

One common form of relief is reasonable cause abatement. This applies when you can demonstrate that you exercised ordinary business care and prudence but were unable to meet your tax obligations due to circumstances beyond your control.

Examples of reasonable cause include natural disasters, fires, serious illness or death of the taxpayer or an immediate family member, or the inability to obtain necessary records. However, reasons such as ignorance of tax law or lack of funds alone are not considered reasonable cause for penalty relief. To request reasonable cause abatement, you need to submit a written statement explaining your situation and provide supporting documentation. Form 843, Claim for Refund and Request for Abatement, is used for this purpose.

Another option is the First-Time Penalty Abatement (FTA). This administrative waiver is available for failure-to-file, failure-to-pay, and failure-to-deposit penalties. To qualify for FTA, you must have a clean compliance history for the three tax years preceding the year for which the penalty was assessed, meaning you have no penalties (other than an estimated tax penalty) for those years. You must also have filed all required returns and paid, or arranged to pay, any tax due.

Requests for FTA can be made by calling the IRS or submitting a written statement. If a request for FTA is denied, you may still be eligible for reasonable cause relief if you provide a detailed explanation. Other less common scenarios for penalty relief might include statutory exceptions or administrative waivers granted by the IRS for specific situations, such as certain disaster declarations.