Facts About the Failure to File or Pay Penalties

Tax Planning College student using his laptop on the campus.

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.

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 the tax deadline, 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, and you paid at least 90% of your tax by the tax deadline, 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 the tax deadline, 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.