What to do if you didn’t file your taxes on time?

The deadline to file an income tax return and pay any taxes due for 2022 was 18 April 2023. Yes, that date has come and gone and if you made the deadline, odds are that you are waiting for your refund if you haven’t received it already.

However, if you missed the deadline and forgot to file for an extension, don’t panic just yet. You may fall into one of four categories, those who aren’t required to file a tax return, are owed a refund, got an automatic extension due to a disaster declaration or you owe taxes that still need to be paid.

Those in the last two groups will still need to file their tax returns and pay any taxes due. The last group who owes taxes, more than any other, the sooner the better. The first two though can breathe a bit easier, but know that filing a tax return could put extra money in your pocket for just a little bit of work, which will be covered later.

What to do if you didn’t file your taxes on time?

For those who live in counties that were given an automatic extension, they range from 15 May to 16 October. The tax relief applies to 2022 individual tax returns and payments due on 18 April, as well as quarterly tax payments and business tax returns that were due on or after the date of the disaster, but you will want to check the specifics for your state.

If you think that you will need even more time than what the IRS has given, you will need to request an extension in writing. That will give you until 16 October 2023 to turn in 2022 income tax returns, but the due dates for different business forms may vary.

For those outside of the disaster declaration areas, you may be facing penalties for filing late as well as on any underpayment of taxes up to 5 percent combined and interest too. You will want to turn in any forms as well as pay any taxes that are due as soon as you can.

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 4.5%, plus 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 roughly five months after taxes are to be filed, April 18 or with an extension 16 October 2023, and won’t exceed 25%. The late filing penalty is calculated based on the tax that remains unpaid after 18 April or, if an extension is granted, after 16 October 2023.

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 18 April until the balance is paid in full. The current interest rate for the second quarter of 2023 (April to June) for underpayments is 7% for corporate and non-corporate filers which is calculated using the federal short-term rate plus three percentage points. That is nearly double the 3% rate for the same period last year. 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.