Late filing of taxes can have serious implications, including fines and penalties. If you do not submit your taxes by the deadline, which is usually April 15th of each year, the IRS will start levying penalties on the unpaid amount.
The failure-to-file penalty is 5% of the unpaid taxes for each month or partial month your return is late, up to a maximum of 25%. This penalty is charged on taxes owed but not paid by the deadline. For example, if you owe $1,000 in taxes and file your return three months late, the failure-to-file penalty is $150.
The IRS may levy a failure-to-pay penalty in addition to the failure-to-file penalty. This penalty is 0.5% of the unpaid taxes for each month or partial month of nonpayment, up to a maximum of 25%. This penalty is charged on taxes owed but not paid by the deadline. In other words, if you owe $1,000 in taxes and don’t pay them until three months after the deadline, the failure-to-pay penalty is $75.
It’s worth noting that the failure-to-file penalty is usually worse than the failure-to-pay penalty. In reality, if you submit your taxes late but do not owe any taxes, you will only be penalized for failing to file. However, if you fail to submit your taxes and owe money, you must pay both penalties.
In addition to penalties, the IRS may levy interest on delinquent taxes. The interest rate is decided by the IRS-set federal short-term rate + 3%. Interest is added every day and levied until the taxes are fully paid.
If you are unable to pay your taxes in full, the IRS may be able to set up a payment plan for you. However, this will not necessarily result in the elimination of the penalties and interest that you owe. If you can establish that you have a good cause for not being able to file or pay your taxes on time, the IRS may be able to lessen or waive the penalties.
Filing your taxes late may be an expensive error, so do all possible to avoid it. If you require additional time to file your taxes, you may seek an extension by submitting Form 4868 to the IRS. This will allow you an extra six months to file your return, but it will not offer you more time to pay any taxes you owe.
Finally, failing to file your taxes on time might result in substantial fines and interest costs. It is critical to submit your taxes on time or to obtain an extension if you want additional time. Ignoring and dodging your tax obligations can have far-reaching implications beyond fines and interest. If the IRS believes you are intentionally dodging taxes, you might face jail time. Even if you know you owe and can’t pay it all at once, err on the side of caution and submit your taxes on time.
