Penalties for Filing and Paying Your Taxes Late
Even with the best intentions, life can get in the way of taxes. Whether you are in a busy personal season or simply forget, tax deadlines can easily slip your mind. Perhaps you knew about the deadline, but simply couldn’t file your taxes on time. Some taxpayers delay filing if they realize they owe more taxes than they expected. In short, there are many reasons you might find yourself late filing taxes to the Internal Revenue Service (IRS).
But what happens next? The minute the deadline passes, you might start thinking about penalties. How much does it cost if you’re late filing taxes?
For better or worse, there is not always a straight line between missed tax deadlines and penalties and interest owed—in other words, there isn’t a flat rate amount you’ll owe. Let’s take a closer look at the penalties for being late filing taxes and what you might expect.
First – When is Tax Day?
Since the mid-50s in the United States, Tax Day—the day when individual income tax returns are due—has fallen on or around the middle of April.
In 2024, your 2023 taxes will be due on April 15th.
This means your tax filing documents must be postmarked, or a digital return timestamped, no later than April 15th, 2024.
When you’re late filing taxes, you’ll likely face two categories of penalties from the IRS: failure to file and failure to pay.
Failure to File (FTF)
This penalty is considered more serious by the IRS. Even if you don’t owe taxes, the government wants to see your records, which helps them keep track of your taxes over the long term. To enforce the habit of filing taxes each year, the IRS makes these penalties as much as 10 times the amount owed for failure to pay.
Failure to Pay (FTP)
This penalty is charged when you owe taxes to the IRS and fail to pay them by the collection deadline. You will be charged this penalty, plus interest due on unpaid taxes, calculated monthly and for each part-month.
Of course, when you are late filing taxes and owe money, you will be subject to both penalties. Here’s how they work together: You will be charged a 5% combined penalty for each month or part-month your tax return is late, up to 25%. Proportionately, this 5% is broken into 0.5% failure to pay penalty and 4.5% late filing penalty.
What if You Still Don’t Pay?
If you do nothing, your tax problems will only grow. After five months, the failure to file a penalty will max out, but the failure to pay the penalty will continue (up to 25%) until you’ve paid the taxes or reached a settlement.
Alongside these penalties for late filing taxes, you can expect the IRS to reach out with intimidating communication. Often, IRS warnings for missed payments will start by mail.
Further escalations can include phone calls or even in-person audits. If you ignore further warnings, the IRS could threaten to seize property or issue levies on bank accounts. Ten days after the IRS issues a final notice of its intent to seize property, place a lien or issue levies, it will increase the rate on the failure to pay penalty from 0.5% to 1.0%.
In other words, if you miss the tax deadline by mistake, it is best to submit them as quickly as possible. If you don’t have the money to pay your tax bill, it’s best to pay as much as you can to reduce percentage penalties on the remaining unpaid taxes.
Avoiding IRS Tax Penalties
So, how do you avoid penalties and interest charges when you know you’ll be late filing taxes? As you might expect, it helps to be proactive. If you know you won’t be able to submit your taxes on time, you can apply for an extension.
Of course, an IRS extension comes with footnotes and caveats. Unless you have extenuating circumstances, you are expected to estimate and pay your taxes on time. This means even if you file for an extension and end up late filing taxes, you still need to pay your taxes by the tax deadline.
Don’t get your hopes up regarding extenuating circumstances, either. The IRS isn’t interested in personal circumstances that may prevent you from filing your taxes. Unless you live in a combat zone, an area that qualifies for disaster relief or another extreme situation, you need to pay your estimated taxes and file your extension form by the due date.
Here are some things to keep in mind if you know you’ll be late filing taxes and want to apply for an extension:
- To avoid penalties, you must file for your IRS extension by the tax deadline
- A tax-filing extension does not give you any more time to pay your taxes
- You can e-file an extension form for free
- As an alternative, when you submit your payment, you can indicate that you would like an extension
By requesting an extension, you will avoid penalties for late filing taxes. You will have until October 15th (or the next business day if October 15th falls on a weekend or holiday) to file your taxes.
What if it’s Too Late?
What if you’ve already missed the extension deadline and you’re officially late filing taxes? Is there a way to avoid paying the IRS penalties? The short answer is—to file your taxes as quickly as possible.
The sooner you get your taxes in, the less you’ll have to pay in fees and interest charges. Remember, once you’ve missed the IRS tax deadline, you can no longer apply for an extension. If you are late filing taxes, you’ll pay penalties each month, or partial month, until they are submitted.
Will the IRS Remove the Penalties?
The IRS will remove penalties in three specific circumstances:
- IRS error – you can document that an error was the result of reliance on IRS advice.
- Good compliance history – you have not been assessed for an FTF or FTP in the last three years.
- Reasonable cause – you can provide a valid reason why you couldn’t comply, based on your facts and circumstances.
If you disagree with the amount the IRS says you owe, or if you can’t pay your tax bill on time, you may wonder if there is any reason to file your taxes. But of course, the longer you wait, the more complex your situation can become.
Often, the best solution is to secure the help of tax professionals. The right team will make sure you are paying the least amount of tax possible and will put an end to ongoing IRS penalties and charges. If you are late filing taxes, whether for a single year or several years, tax experts can help you file past taxes and become current.
Engaging a tax team will put an end to ongoing IRS penalties and fees and it will also put a stop to intimidating communication. The right team will fully assess your situation and, where necessary, set up an installment agreement with the IRS, through which you can enter a payment plan. This action will put a stop to both IRS penalties and intimidation tactics.
At Franskoviak Tax Solutions, we have helped thousands of clients with taxes and tax problems for more than 30 years. We provide comprehensive tax services with first-class expertise and a personalized, boutique-style approach. Speak to our team about personal and business taxes, IRS tax deadlines, payroll taxes, IRS tax relief and tax problems such as IRS tax notifications, payroll tax debt, delinquent taxes and more.
Start with a free consultation—we’re here to help you with tax problems, including issues related to late filing taxes. Where required, we will help negotiate with the IRS on your behalf.