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FINANCIAL NEWS

Tax deadline 2023: what are the penalties if I do not submit the documentation on time?

Failure to file a tax return and pay any money that you owe the IRS can lead to an ever increasing bill with the agency as interest and penalties rack up.

Update:
Being late with your taxes will cost you

Americans have until April 18, 2023 to file their 2022 income declarations and pay any taxes they may owe to Uncle Sam. Filers can submit a request for an extension until Oct.16 to turn in their paperwork, but they aren’t off the hook for any money they may owe. You need to pay any balance due, to the best of your knowledge, that you owe by Tax Day.

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.

What are the penalties for filing a late tax return?

Missing the April 18 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, April 18 or with an extension Oct. 16, and won’t exceed 25%. The late filing penalty is calculated based on the tax that remains unpaid after April 18 or, if an extension is granted, after Oct.16.

After more than 60 days have passed from the filing deadline, the IRS can impose the minimum failure-to-file penalty. In 2023, taxpayers who file late could face the lesser penalty of $435 or 100% of the tax required to be shown on the return.

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 April 18 until the balance is paid in full. The current interest rate for underpayments is 7% for Corporate and Non-Corporate filers 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.

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.

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.