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What happens if I file my taxes late? Penalties and interest

The 2022 tax filing deadline has passed for most taxpayers, but for those that didn’t file for an extension or owe taxes financial penalties could mount up.

What to know about IRS late penalties on tax filings

The majority of taxpayers managed to file their 2021 tax returns on time, but there were a fair number of filers who still need to turn in their tax declaration. The IRS advises to get your tax filing in as soon as possible, not only to receive your tax refund but to avoid any potential late penalties.

That is especially true for taxpayers that have an outstanding bill with Uncle Sam. Even if you file on time or requested a six-month extension, interest and penalties start to accrue from the tax deadline, which was 18 April in 2022. Here’s what you need to know…

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IRS late penalties and interest

Although the IRS sets an annual deadline for submitting tax returns, taxpayers can still submit their tax declaration after it passes. If the individual does not owe any taxes and are due a refund, they have a maximum of three years to claim it, and must do so before the April tax deadline of that year. This maybe the case for families that failed to claim the 2021 Child Tax Credit and have yet to file a tax return.

However, if you owe taxes the IRS encourages you to do so as soon as possible to limit penalties and interest. Taxpayers that find themselves in this situation could face a Failure to File Penalty, if you haven’t filed for an extension, and a Failure to Pay Penalty, as well as interest on both. The amount will accrue the longer you delay settling with the IRS.

What is the Failure to File Penalty?

Taxpayers that filed for an extension on or before the tax deadline, which was 18 April in 2022, will have until 17 October 2022 to get their 2021 tax return submitted. However, those that haven’t could face a Failure to File Penalty which is based on “a percentage of the taxes you didn’t pay on time,” according to the IRS.

The agency calculates the penalty based on when you do eventually submit your tax return based on how late it is and the amount of unpaid tax from the time your original tax bill was due, not from the extension date. The penalty is five percent per month up to a maximum of 25 percent of your unpaid taxes.

If you owe both the Failure to File Penalty and a Failure to Pay Penalty, the latter is subtracted from the former so that the combined total is five percent. The IRS will tack on interest as well for each month or partial month until the tax bill is paid in full.

If you submit your return more than 60 days late and you have an outstanding tax bill you will receive a Failure to File Penalty of at least $435, or 100% of the tax you were required to pay, whichever figure is lower.

What is the Failure to Pay Penalty?

Even those taxpayers that filed on time could face a Failure to Pay Penalty if they don’t pay the tax reported on their tax return “by the due date or approved extended due date.” The IRS will notify the taxpayer of the amount due based on a percentage of the amount underpaid and the length of time since it was due. Depending on the amount and type of penalty, the balance must be paid within certain time limits.

The penalty is 0.5 percent for each month or part of a month that the bill goes unpaid, maxing out at 25 percent. Even if the Failure to File Penalty has reached the 25 percent limit, not paying the balance of unpaid taxes penalty will continue to accumulate until reaching its maximum. However, interest will continue to be applied until you are all paid up. Currently, the IRS’ interest rate on any taxes not paid is 4% per year, compounded daily. The agency updates the interest rate on a quarterly basis.

Taxpayers who can’t pay on time but file a tax return and arrange an approved payment plan, the Failure to Pay Penalty is reduced to 0.25 percent per month for the duration of the agreement, plus interest.


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