Tax Deadline 2021: what happens if you file taxes late?
At the stroke of midnight if you haven’t filed your taxes and you owe the IRS money, interest and penalties will begin racking up until you pay in full.
Filing your tax return late if you owe money to the IRS can be an expensive proposition. Not only could you face penalties for filing late but you will also face late payment penalties and interest to boot.
The Internal Revenue Service (IRS) pushed back the filing deadline for a second year in a row due to complications for taxpayers due to the covid-19 pandemic as well as to give extra time to take advantage of the numerous tax provisions created by the American Rescue Plan. Taxpayers have until midnight 17 May to file their return, ask for an extension and pay any taxes they may owe to the IRS.
What are the penalties for filing a late tax return?
Missing the 17 May filing deadline could result in the IRS imposing a failure-to-file penalty. The penalty is 5%, minus the failure-to-pay penalty when both apply, on any underpayment of taxes for each month, or part thereof, that a tax return is late. The penalty will max out five months after taxes are to be filed, 17 May or with and extension 15 October, and won’t exceed 25%. The late filing penalty is calculated based on the tax that remains unpaid after 17 May or, if an extension is granted, after 15 October.
After more than 60 days have passed from the filing deadline the IRS can impose the minimum failure-to-file penalty. In 2021 taxpayers who file late could face the lesser penalty of $435 or 100% of the tax required to be shown on the return.
The #IRS deadline to file and pay federal income taxes has been moved to #TODAY, May 17. If you need additional time to file, request an extension to Oct. 15, 2021. https://t.co/aO7gmxudbN pic.twitter.com/Epqe5vXiGR— IRSnews (@IRSnews) May 17, 2021
What is the penalty for failing to pay taxes?
The failure-to-pay penalty is 0.5% of the unpaid taxes per month, with a full monthly charge even if the taxpayer pays before the end of the month. For individual taxpayers, if a return is filed on time with an approved installment agreement the penalty is 0.25% during the agreement period. However, if tax is not paid within 10 days of a notice of intent to levy or seize property the penalty is 1%. The penalty will be recurring until the tax is fully paid or until the maximum of 25% is reached.
In addition to the penalties, the IRS will start charging interest on any unpaid balance of taxes owed which will accrue and compound daily from 17 May until the balance is paid in full. The current interest rate for underpayments is 3% which is calculated using the federal short-term rate plus three percentage points. Any outstanding penalties will also accrue interest while they remain outstanding so it is vital that you complete your tax return on time.
#TaxDay Goooaaalll: Use your head by filing electronically and choosing Direct Deposit. If your goal is to get extra time, file for an extension by midnight tonight to get until October 15. And thanks to all the accountants – on and off the field! ⚽️💜 https://t.co/ZE8sPMAGji https://t.co/A6h7vAw2B1— IRSnews (@IRSnews) May 17, 2021
What if I’m owed a refund will I still be penalized?
There is no penalty for filing late if it turns out that you are owed a tax refund. However, the longer you wait to file the longer it will take to get your money back from the government. As well there is a three-year limitation to claim any tax refund that you have coming your way. Because Tax Day was delayed this year, you have until 17 May, 2024 to get any tax refund that's due to you.
Likewise, taxpayers have three years to correct a tax return to claim any refund money they left on the table. If you file for an extension you will have from the date you filed your return with the IRS to claim any money you missed out on in your original filing. After the three-year period the federal government will keep any money that went unclaimed.
There are exceptions to the three-year refund rule. In the case of deductions for bad debt or worthless securities, taxpayers have seven years to claim a refund. The limit does not apply for those who are unable to manage their financial affairs due to physical or mental impairments.
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