Taxes - What Happens if I File Late?

Ahhhh, spring. The weather warms, the days become longer, hope springs eternal. The long, cold winter begins to fade into memory and love is in the air. But wait – here comes the fly in the ointment – It’s time to get moving on filing your taxes!

That’s right, the IRS wants to join the party, too. For tax year 2018, personal income taxes are due on April 15, 2019 for all Americans except residents of Maine and Massachusetts, who get an extra two days until April 17th (this is because Patriots’ Day, an official holiday in those two states, falls on April 15th). Either way, 2019 tax season, with all its unpleasantness, is already here for Americans. It’s time to get ready.

But, what about if an individual isn’t ready to file on time? How does someone get an extension? What are the consequences of filing taxes late? How bad are the penalties? What about interest expense on unpaid taxes? Let’s take a closer look.

Any American can get a six month extension (until October 15th) for filing Federal taxes by submitting IRS Form 4868 prior to April 15th,  or by submitting an electronic tax payment prior to the April 15th due date. Filing for an extension is free and easy to do.

However – importantly – notice that the extension is only in regard to filing a tax return – not to the actual paying of taxes! Taxes are still due by April 15th (or April 17th for Maine and Massachusetts residents) – and for individuals who don’t pay by the due date – there will be penalties and interest expense on the unpaid tax liability.

Furthermore, for individuals who file late without having receiving an extension first, there are penalties for filing late and paying late. So, if you’re going to be filing late, make certain to first receive an extension to avoid late filing penalties- and be sure to pay your taxes on time.

First, the good news. If a taxpayer is due a refund, there is no penalty for filing late. That’s about where the good news ends. The reality is that taxpayers who owe tax and fail to file and pay on time will usually be charged interest and penalties on the tax they haven’t paid.

There are two penalties – one for filing late (more than sixty days past the due date) and another for paying late – and interest accrues on top of penalties, so things can get expensive fast. This informative page from the IRS website can serve as a useful reference.

The minimum penalty for a late filing is $205 (or 100% of the tax liability if it is less than $205), but can be as much as 5% of the unpaid taxes each month, up to a maximum of 25%.

Even if you can’t afford to pay your tax bill, you should still submit a timely income tax filing or get an extension. Always take steps to avoid the late filing penalty. Once you’ve filed and determined that you cannot afford to pay your full tax liability, it’s time to pursue an installment agreement with the IRS.

The IRS does work with taxpayers to help them resolve tax debt issues. Installment agreements are quite common and involve making regular monthly payments for up to a period of five years – as long as the total tax liability does not exceed $50,000.

Additionally, for those taxpayers who file an extension but pay 90% of the tax liability by the initial due date, a late payment penalty will not apply as long as the remaining balance is paid in full by the extension due date. Interest expense on the remaining unpaid tax liability will accrue, however.

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