Facts About the Failure to File or Pay Penalties

Tax Planning

If you haven’t filed your tax return yet, you are not alone. Since people who are due refunds rush to file early, I’m guessing that you might be delaying filing because you know you will owe taxes. Well delaying filing because you owe can be more costly for you.

Tax Day

Ignoring the IRS won’t make them go away. The IRS can assess a penalty if you fail to file, fail to pay or both. Since the penalty for failing to file is usually greater than the penalty for failure to pay, here’s my number one tip for you: file your tax return by April 15, even if you can’t pay the tax. At least that way you aren’t doubling up on penalties you face.

Here are some more facts you should know about possible IRS penalties.

Filing late can increase the amount you owe by 25%. The penalty for filing late is usually 5% of the unpaid taxes for each month your return is late. This penalty will not exceed 25% of your unpaid taxes. This penalty is imposed even if your return is just one day late. So if you file on April 16 rather than April 15, you’ll owe 5% more than you would otherwise.

Even if you don’t owe tax, there’s still a penalty for filing late. If you file your return more than 60 days after the due date, you’ll have to pay the minimum penalty, which is the smaller of $135 or 100% of the unpaid tax. That means you’ll owe the IRS $135 for filing late, even if you don’t owe tax or expect to get a refund.

 Paying late is costly as well. Not paying your taxes by the due date will garner you a failure-to-pay penalty of ½ of 1% of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25% of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5% failure-to-file penalty is reduced by the failure-to-pay penalty. So let’s see, that means that for the first five months you are delinquent, you’ll owe 25%.

Filing an extension may help. If you file for an extension to file until October 15, and you paid at least 90% of your tax by April 15, you won’t have to pay a penalty for failure to pay the remaining balance, as long as your taxes are paid in full by the extended due date.

Tell the IRS why you are late. If you have a really good excuse for why you couldn’t file or pay by April 15, you may not have to face a failure-to-file or failure-to-pay penalty. So if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect, let the IRS know.

So Even if you can’t pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options.

Comments (8) Leave your comment

  1. interesting – so as long as you don’t owe on your return whether you paid in $20 or $20,000 that so long as you owe no more there is not a penalty for filing after 4/15/??
    ?

    1. Hi,
      You should however still file by 4/15 if you can and file an extension if you can’t make the deadline so the IRS does not send you a tax bill with what they think your tax should be. They do not know what possible deductions you have so they may show that you owe.
      Thank you,
      Lisa Greene-Lewis

    2. Correct. I used to file once every 3 years as after that you cannot file for taxes 4 years old. I file every 2 years now. I organized 2013 and 2012 and will get around to filing this summer when I need some extra $ for vacations (yes I could be investing $, so it’s a bad savings account). The IRS called me one time in 2005 and said they would file for me if I don’t do it and I said okay. I went and filed them before they did it, so I don’t know what they would have come up with. I doubt they call everyone who hasn’t filed, but that was my one experience with the IRS and not a bad one at all.

  2. This part of the article is inaccurate – That means you’ll owe the IRS $135 for filing late, even if you don’t owe tax or expect to get a refund.

    You will owe nothing if your taxes for the year are already paid off via payroll deduction, etc. The IRS is more than happy to keep your refund in such cases.

  3. I have lived abroad since 1976, and have never filed, believing that since I was earning nothing, I didn’t need to file. Except for about ten years (1991 – 2002), I have never earned more than about $1000 per year. When I was earning, I paid tax in the country where I was living. I am now considering renouncing my American citizenship – should I be worried that the IRS will fine me for never having filed?

    1. They can only fine you for taxes owed I believe and John Daniels got it correct where the article got it wrong. As you haven’t filed, the IRS can go back and audit you 7 or 10 years (I’m not a tax professional, so I don’t ercall which one it is). My girlfriends’s sister moved to Canada and hasn’t filed for a while and is in the same situation, so I have researched this. Point 1, you still have to file if you are a citizen no matter where you live (1934 tax law). 2, any taxes you paid to foreign countries are credited to your taxes due to the US so long as the US and the foreign country have this agreement. 3, bank account interest counts as income, so if you’ve paid taxes and it would work out that you didn’t owe the US any taxes, you’re good, but you should go ahead and fill out a 1040EZ for the past few years just to make yourself feel better. Renouncing citizenship will clear you of future filings, but not past years, though it sounds like you’ll be perfectly safe.

  4. The penalty for filing 60, or more, days late is $135 or the amount of the tax due, whichever is less. However, if the taxpayer owes less than $135, the penalty is reduced but no less than zero. Example: If the taxpayer owes $100 and files 60 days late, the penalty is $100. But if the taxpayer is expecting a refund and files 60 days late, there is no late filing penalty.

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