While dreading tax season is a near-universal experience, there’s something that can make it far worse – not filing or paying your taxes. Filing your taxes late puts you further in the hole if you owe a balance because of the fees and interest the IRS adds to your bill. You can end up paying substantially more than your original bill if you delay filing your taxes. Here’s what to know and how much you might owe.
A financial advisor can help optimize your financial plan to lower your tax liability.
What Happens If You File Your Taxes Late?
Filing your taxes late results in penalties if you owe the IRS. Specifically, the IRS charges a penalty for not filing and paying on time, plus interest on the unpaid amount until you pay the balance due. Late payment fees apply even if you receive an extended due date to file (but the extension will nullify the late filing fee until October 15).
However, filing your taxes late doesn’t always result in penalization. The following cases allow taxpayers to file after April 15 without consequences:
- The IRS owes you a refund.
- You live outside the country as part of your service (ie, military service in a combat zone) or in a federally declared disaster area.
That being said, you can’t claim a refund unless you file your taxes, meaning you won’t receive the money if you don’t file. As a result, the outcome of filing late in this case is receiving the refund later than if you had filed on time.
Penalties for Filing Late Taxes and Failing to Pay
Filing late means the IRS begins to accumulate penalties against your account in the following ways:
- A failure to file penalty of 5% of the balance due per month (less any failure to pay penalty)
- A failure to pay penalty of 0.5% of the balance due per month
- An 8% annual interest charge that compounds daily
The result of these two fees is a 5% penalty per month. However, these fees max out at different rates: After five months, the late filing penalty reaches a 22.5% cap. On the other hand, the failure to pay penalty increases by 0.5% until it reaches 25% (that’s 50 months of not paying). The maximum total for not filing or paying on time is 47.5% of the balance due plus the interest charges. Interest continues accumulating until you pay the balance in full.
Fortunately, a safeguard is in place to help taxpayers who file late. For 2024, the Failure to File penalty is the smaller of $485 or 100% of the balance due. This boundary helps late filers – but remember, late payment fees and interest will continue accruing past this amount.
How Does the IRS Collect Payments
The IRS has multiple methods of collecting payments if you are slow to file your taxes or don’t respond to correspondence. While the IRS prefers taxpayers to communicate regularly and establish payment plans, it can take any of the following routes:
Voluntary Payment
If you file late, the first and best option is to respond to the IRS’ attempts to contact you about the taxes due. You’ll receive instructions about paying (most methods of payment are viable, including paying with a card online, mailing a check, or paying by phone). If you’re unable to pay the entire balance due, you can set up a payment plan with the IRS. Doing so will reduce your fees versus ignoring the bills you receive.
Offers in Compromise (OIC)
Affording your tax bill may be beyond your current or future financial abilities, including the ability to manage a payment plan. In these cases, asking the IRS for an OIC can reduce the amount owed. Qualifying for an OIC requires the taxpayer to file all their tax returns, be current on estimated quarterly tax payments, and have at least one tax bill from the IRS. You can use the IRS OIC Pre-Qualifier webpage to see if you’re eligible for a compromise.
Filing a Tax Lien
Don’t let the name confuse you – the IRS can file a tax lien against taxpayers who don’t file or pay their taxes. A lien allows the IRS to garnish your wages, divert future tax refunds to the balance due, and receive the proceeds from the sale of your home or vehicle. The IRS typically reverts to this option if you don’t reply to multiple communication attempts from the government to rectify your tax situation.
Asset Seizure
The IRS will begin asset seizure as a last resort if you don’t respond to attempted communication. The government will send you a final notice 30 days before seizing assets to pay for the taxes due. It’s best for all parties involved to prevent this type of action by establishing a payment plan or disputing the amount owed. In other words, the seizure of assets occurs if you don’t take any action for a prolonged period and are completely unwilling to work with the IRS to address the taxes.
Disputes, Deferments and Relief
When the IRS tries to collect a tax balance, you can dispute the bill by supplying documentation to prove you owe a different amount. If the IRS doesn’t change its position, you can take the case to court if you believe the IRS is charging an incorrect amount. Taxpayers can also file for deferment if they are in the military. Lastly, you can negotiate relief from penalties when communicating with the IRS about how to pay your balance.
Do I Have to Pay My Taxes All at Once?
The last day of the year to file your taxes is April 15, and your tax payment is also due that day. After April 15, any unpaid tax amount begins accruing penalties and interest.
Remember, filing for an extension gives you more time to file taxes, but not more time to pay, so the extension doesn’t nullify fees for late payments. For example, if you owe the IRS $500, it doesn’t matter if you file in April or October. You’ll owe $500 plus fees for not paying in April, even if you receive an extension to file.
In other words, you’ll avoid penalties and interest by paying your taxes all at once. If you can’t afford to, it’s best to proactively communicate with the IRS to set up a payment plan and minimize penalties.
Tips If You Miss the Filing Deadline
Missing the filing deadline can result in heavy fees and penalties. Here’s what to do if you don’t file in time to mitigate the damage:
- File as soon as possible. The filing due date for 2024 is April 15, and filing within days or weeks after will minimize late penalties.
- If your adjusted gross income (AGI) is $73,000 or less, you can file for free on irs.gov until October 15. All income levels can use the IRS’ free fillable forms to file, although these require more work and familiarity with taxes.
- View your account on the IRS website and make a payment if necessary.
- Apply for an installment agreement on the IRS website if you can’t afford payment in full.
Bottom Line
Filing your taxes late can have dire financial consequences if you ignore notices from the IRS and don’t act to fix the situation. Late penalties and interest can cause the balance to spiral out of control. As a result, it’s crucial to file as soon as possible and communicate with the IRS about your repayment options. The IRS works with taxpayers who can’t afford payment in full by creating installment plans, which are infinitely preferable to tax liens and asset seizure.
Tips for Late Tax Filers
- Keeping up on your taxes can be challenging when juggling other priorities. A financial advisor can help you plan a timely tax strategy. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The American federal tax code can be difficult to break down. However, SmartAsset’s federal income calculator can estimate your tax liability with a few straightforward pieces of information. This tool can help you make an accurate payment toward your tax bill if you’ve missed the filing deadline.
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