If you file your taxes late, the IRS generally imposes penalties and interest on any unpaid tax amount. The key consequences include:
- Failure-to-file penalty: This is 5% of the unpaid tax for each month or part of a month your return is late, up to a maximum of 25% of the tax owed. If your return is more than 60 days late, the minimum penalty is either $510 or 100% of the unpaid tax, whichever is less
- Failure-to-pay penalty: This penalty is 0.5% per month on any unpaid taxes, increasing to 1% per month if you do not pay within 10 days after IRS notice. This penalty is also capped at 25% of the unpaid tax
- Interest charges: Interest accrues on unpaid taxes and penalties from the due date of the return until payment is made in full. Interest rates are adjusted quarterly
- If both failure-to-file and failure-to-pay penalties apply in the same month, the 5% failure-to-file penalty is reduced by the 0.5% failure-to-pay penalty, resulting in a combined penalty of 5% per month (e.g., 4.5% + 0.5%)
- If you are due a refund, there are no penalties or interest for filing late, but your refund will be delayed until you file. Also, the statute of limitations for IRS audits does not start until you file
- You can request an extension to file (usually until October 15) by submitting Form 4868 before the April deadline, but this does not extend the time to pay taxes owed. Paying at least 90% of your tax by the original deadline can help avoid failure-to-pay penalties
- The IRS may offer penalty relief programs, such as first-time penalty abatement or payment plans, if you meet certain criteria or demonstrate hardship
- If you do not file, the IRS may file a substitute return on your behalf, which often results in a higher tax liability since it lacks deductions and credits you might claim
In summary, filing taxes late can lead to significant financial penalties and interest, but taking steps like filing for an extension, paying what you can by the deadline, and communicating with the IRS can help minimize these consequences
