What to Do If You Missed the Tax Deadline?

Missed tax deadlines can cause significant concern, but understanding the steps to take can help manage the situation effectively. Acting promptly is important to mitigate potential financial consequences. While it may seem daunting, solutions are available to address late filings and payments.

Filing and Paying Your Taxes

Filing your return as soon as possible is a primary step. Even if you cannot pay the full amount owed, submitting the return helps reduce the “Failure to File” penalty, which is typically more substantial than the “Failure to Pay” penalty. Taxpayers can file a late return electronically or by mailing paper forms. If you received a notice from the IRS, ensure you send your past-due return to the address indicated on that notice.

Paying as much of your tax liability as you can at the time of filing minimizes penalties and interest. You can pay directly from a checking or savings account using IRS Direct Pay. Other electronic options include paying with a credit or debit card through approved payment processors. You can also make payments through the Electronic Federal Tax Payment System (EFTPS) or by check or money order.

For those unable to pay their full tax balance immediately, options exist to manage the debt. A short-term payment plan may provide up to 180 additional days to pay the balance in full, along with any accrued penalties and interest. Individuals owing less than $100,000 in combined tax, penalties, and interest may qualify for this online. If more time is needed, a long-term payment plan, also known as an installment agreement, allows for monthly payments for up to 72 months. Individuals owing $50,000 or less in combined tax, penalties, and interest, and businesses owing $25,000 or less in combined payroll tax, penalties, and interest, may be eligible for an online installment agreement.

An Offer in Compromise (OIC) allows certain taxpayers to settle their tax debt for a lower amount than what is owed, if the IRS determines that collecting the full amount would create an economic hardship or is unlikely to be collected. Eligibility for an OIC depends on factors such as ability to pay, income, expenses, and asset equity. Taxpayers must have filed all required tax returns and made any necessary estimated payments to be considered for an OIC.

Penalties and Interest

Missing a tax deadline can result in penalties and interest charges. The Failure to File penalty is assessed when a tax return is not submitted by the due date or extended due date, unless there is a reasonable cause for the delay. This penalty is typically 5% of the unpaid taxes for each month or partial month the return is late, up to a maximum of 25% of the unpaid tax. If the return is more than 60 days late, a minimum penalty may apply, which is the lesser of a specific amount or 100% of the tax required to be shown on the return.

The Failure to Pay penalty applies when taxes owed 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 tax remains unpaid, also capped at 25% of the unpaid tax. The Failure to File penalty is higher than the Failure to Pay penalty. If both 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, resulting in a combined penalty of 5%.

Interest accrues on unpaid taxes and penalties from the original due date until the balance is paid in full. The interest rate is determined quarterly and for individuals, it is typically the federal short-term rate plus 3 percentage points. This interest is assessed on the previous day’s balance, including any accumulated interest and penalties.

Seeking Penalty Relief

It is possible to seek relief from certain penalties under specific circumstances. One common avenue is demonstrating “reasonable cause” for the failure to file or pay on time. Reasonable cause is determined on a case-by-case basis and considers all facts and circumstances. Examples of events that may qualify include natural disasters, serious illness, death in the immediate family, or an inability to obtain necessary records. To request relief based on reasonable cause, taxpayers generally need to provide a written explanation and supporting documentation.

Another potential option for penalty relief is the First-Time Abate (FTA) waiver. This administrative waiver is available to taxpayers who have a clean compliance history for the past three tax years, meaning no penalties for the same type of tax return during that period. To qualify, taxpayers must have filed all required returns and paid, or arranged to pay, any tax due. The FTA waiver typically applies to Failure to File, Failure to Pay, and Failure to Deposit penalties. This relief can often be requested by calling the IRS or responding to a penalty notice.

For a formal request for abatement of penalties and interest, particularly if a refund of already-paid penalties is sought, taxpayers may use Form 843, Claim for Refund and Request for Abatement. This form requires providing basic identifying information, the tax year, the amount to be abated or refunded, the type of tax or fee, and the reason for the request, such as reasonable cause or First-Time Abate. The form, along with any supporting documents, should be mailed to the appropriate IRS service center, often indicated on the penalty notice received.