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What happens if you are late filing taxes

By Sarah R
Modified on February 8, 2024
what happens if you are late filing taxes

Taxes are a yearly financial responsibility for most U.S. citizens. Generally, the deadline for filing tax returns is April 15. If that day falls on a Sunday or a holiday, the date is typically pushed up to the following business day. For example, if April 15 happened to fall on a Sunday, the new deadline for the tax year would be Monday, April 16. But what happens if you are late filing taxes? 

What Happens if You Don’t File Taxes by the Tax Deadline?

If you see that the tax deadline is approaching but know, you won’t be in a place to file, consider a tax extension. Getting an extension on your taxes allows you to file and pay a bit late without dealing with unexpected fees or costs. 

But what happens if you don’t pay taxes on time? Unfortunately, people who file or pay their taxes late are subject to fees and other potential penalties. After filing their taxes, taxpayers have up to 120 days to pay any taxes they owe. Depending on when you file and pay, you may be subject to not only a late filing fee but a late payment fee as well. 

What Is a Late Filing Penalty? 

Late filing penalties are charges from the IRS to taxpayers who file their tax returns late. Citizens who file and owe money on their tax return may also receive a failure to pay penalty if they do not pay the IRS on time. To help prevent people from racking up too much debt, the IRS cuts both late filing and late payment fees off when they reach 25% of the total amount of unpaid taxes. 

How Does the IRS Calculate a Late Payment Penalty?

The IRS has a few stipulations when calculating a late payment penalty or a late filing penalty. First, a failure to file penalty may reach 5% of the unpaid taxes owed for each month, or part of a month, that is past the tax filing deadline. 

For example, say a taxpayer owed $850 in taxes and was one month late with filing. Since 5% of $850 is $42.50, the total unpaid tax balance would come out to $892.50. 

Furthermore, the maximum late filing penalty fees won’t accumulate to more than 25% of the total unpaid tax. Using the example above, that means the late filing penalties for $850 of taxes owed would reach no higher than about $212.50. Combined with the original tax bill, that comes out to approximately $1,062.50 of possible penalties for failing to file your tax return.

How Long Will a Penalty for Filing Late Accumulate?

The length of time fees for a tax penalty may accumulate depends on a few different factors. The first, as discussed, is the total amount of unpaid tax. Late payment fees will stop accumulating after the fees have reached 25% of what the total unpaid tax is. 

Another factor to consider is the amount of time that has passed since late filing fees started. IRS penalties for failure to file will max out at five months. But, while a failure to file will stop accumulating after five months, a failure to pay penalties will continue to accumulate until they have reached 25% of the total unpaid tax amount. 

Lastly, people who file their taxes over 60 days late may face a minimum penalty of $435, or the full amount of the required tax shown on the return, whichever amount is less. 

What Should You Do if You Receive an IRS Notice or Letter? 

There are a few reasons why the IRS may send you a notice or letter. They are: 

  • There is a balance due on your taxes. 
  • You are supposed to get a higher or smaller refund than originally expected. 
  • There is a question or uncertainty about your tax return. 
  • The IRS needs to verify your identity. 
  • The IRS needs additional information in order to complete your tax return. 
  • There was a significant change in your tax return. 
  • There are delays in processing your tax return. 

When you first get your IRS notice or letter, read it over carefully. Make sure you understand why the IRS is sending you the notice or letter, and be sure to contact them for clarification if there is any uncertainty. You may even want to contact a tax professional to help you through the process. 

The next step is to respond. There should be a response date listed on your IRS notice or letter. This date indicates how long you have to address the issue expressed in the IRS notice or letter. By responding to your IRS notice or letter promptly, you increase your chances of minimizing any additional fees or charges you are subject to and will preserve your right to appeal if needed. 

You may appeal your IRS notice or letter if you disagree with the reasoning behind the letter. For example, if the IRS is sending you a notice because you underpaid on your taxes, but you have proof that you paid exactly what the IRS said you owed, you would want to appeal. Just make sure you have evidence if you think the IRS sent you a notice or letter in error. 

Is There Interest on a Failure to File Penalty?

Unfortunately, you may owe interest on any tax penalties you accumulate. However, rest assured that the combined fees and taxes won’t reach more than 25% of the total amount of unpaid taxes you owe. By law, the IRS may not remove or reduce any interest charges unless the penalty itself is either redacted or lowered. 

Can You Remove a Failure to File Penalty From Your Tax Profile?

Under certain circumstances, it might be possible for the IRS to remove or reduce tax penalties or fees charged to a taxpayer. The IRS may be able to remove or get rid of penalties if the taxpayer can show that they acted in good faith and can show proof of a reasonable cause as to why they were unable to meet their tax obligations. For example, say you were a victim of identity theft and had your checking account information stolen. If you were unable to use your bank account to pay taxes because your bank account was frozen, the IRS might be able to grant you an extension and eliminate any fees you were charged. 

But, the IRS cannot remove or reduce fees for borrowers who do not have a good reason for filing or paying taxes late. For example, if you simply forgot to file your taxes but have sufficient funds in your checking account to do so, the IRS most likely would not remove or reduce your fees. 

Ways To Find Fast Cash When You Owe Taxes

Below are some common financial products people use to help them out when they owe taxes. 

Quick Cash Installment Loan 

One type of funding that may prove extremely helpful with paying your taxes is an online installment loan. Personal installment loans from a direct lender can come with competitive rates, personalized terms, and convenient loan amounts that make paying your taxes a stress-free process.

Payday Loans

While easy payday loans online are often a popular choice for people looking for quick cash, they may not be the smartest choice for you financially. Payday loans can come with a quick turnaround time which is great, but they also almost always come with extremely high-interest rates that can cause consumers to fall deeper into debt. 

Car Title Loans

Vehicle owners may consider using their vehicles as collateral in order to get a car title loan. How much you may get on a car title loan depends on factors like the equity in your vehicle as well as your income. Borrowers with a more expensive car and a higher income may receive more funding than a borrower with a cheaper car and lower income.

Keep in mind that car title loans are often high-stakes loans where you run the risk of losing your vehicle if you fail to pay or default on the loan. 

Cash Advances 

You may also be considering a cash advance on a credit card in order to pay your taxes. However, credit card cash advances often come with slightly higher rates than a regular credit card purchase, so make sure you are able to pay off that balance quickly to avoid accumulating additional debt. 

Credit Union Loans

A financial institution like a credit union may offer loans to people who live within a designated area or work within a certain industry. Before you apply for a loan with a credit union, make sure you meet their specific approval requirements. 

The Bottom Line: Filing Taxes Late

While filing late on your taxes is never the goal, sometimes it happens. If you find yourself in a situation where it’s past the tax day due date, and you have yet to pay or file your taxes, it’s best to act quickly. E-file your return as soon as possible to avoid penalties like unwanted late payment fees. If you need help, there are tax pros who can help taxpayers file and pay their taxes for a small price or even for free.  

Quite often, taxpayers receive a tax refund after they file their taxes. A tax refund represents money you have overpaid over the course of the tax year, which the IRS gives back to you. Tax refunds can range from a few under a hundred dollars to a few hundred dollars, to even a few thousand dollars! It all depends on what types of dependents and assets a taxpayer has. 

References:
What if I Can’t Pay My Taxes? | Internal Revenue Service
Failure to File Penalty | Internal Revenue Service
Understanding Your IRS Notice or Letter | Internal Revenue Service 

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