What Are the Penalties for Filing Taxes Late?

Ideally, your taxes are filed and paid on time every time in the tax year—and if you’re lucky, you even get a tax refund. But as we all know, life is far from ideal, and sometimes a taxpayer may end up with a past-due return or outstanding tax debt. So, how does the Internal Revenue Service (IRS) deal with these situations?

Failure To File Is More Severe Than Failure to Pay

At the federal level, the IRS may assess separate penalties for “failure to file” a return and “failure to pay” any tax due by the payment deadline. The failure-to-file penalty is actually more severe, so it is always in your best interest to file your Form 1040 by the deadline, even if you are unable to immediately pay the balance due.

“If it’s at all possible to file on time, you should—even if you can’t pay,” says Amber K. Quintal, a tax and estate planning attorney at Ogden Murphy Wallace in Seattle. “Filing on time will get you out of fairly substantial failure-to-file penalties. The failure-to-pay penalties are lower. Sometimes people don’t file because they don’t have the money, but that’s really shooting yourself in the foot.”

Getting a Tax Extension

If you cannot file by April 15, the IRS has an olive branch in Form 4868, the Application for Automatic Extension of Individual Income Tax Return. If you file it, the IRS will grant a six-month extension of time and save you from that penalty—assuming you file your federal tax return within the extension period.

That said, it won’t absolve you of failure-to-pay penalties. If you don’t use the form, you may receive a late filing penalty.

Late Filing vs. Late Payment Penalties

Failure to file brings a minimum penalty of 5 percent of any unpaid taxes owed for each month your return is late. This penalty starts the day after the tax return due date and can accrue up to 25 percent of the total tax debt.

The failure-to-pay penalty is 0.5 percent of the tax due for each month past the original due date. Note that you will still be charged a failure-to-pay penalty during any extension period unless you pay 90 percent of your estimated tax due before the original April 15 deadline.

Finally, the IRS will charge daily compounded interest on any unpaid taxes, regardless of the cause or whether you have an extension. The exact amount of interest is based on the Federal Reserve’s short-term interest rates plus 3 percentage points. Payment plans based on an installment agreement are available through the IRS.

Avoiding Collection Activity

The IRS has the power to garnish wages, sweep bank accounts, and foreclose on property. But first, they must provide you with notice and give the opportunity for due process. “Often what happens is somebody gets a notice of intent to levy or a notice of lien and they’ll freak out,” Quintal says, “which is when they contact an attorney.”

A qualified tax professional can advise you on avoiding such collection scenarios and resolving your tax debts with the IRS as well as state tax agencies. They can, for instance, argue on your behalf that you have a good reason for being delinquent.

“If there’s a reasonable cause for failing to file or pay on time, the IRS can remove those penalties,” Quintal says. “It’s a pretty high bar—it’s not ‘I didn’t have the money’ or ‘I just didn’t get to it’—but there really is a valid reason in some cases. It would be things like someone died, there was a major illness, a fire—something really big or sudden.”

There are other avenues to pursue, as well. If there is a mistake, you can contest the underlying debt. If they intend to take too much, there are protections to keep you from being destitute. You can request the IRS to put you on currently-not-collectible status for short-term penalty relief if you can’t pay at the moment. You could also ask for a payment arrangement, such as monthly installments. “And with all of these things, there is a lot of paperwork that goes into it, and the IRS has specific standards of what they’ll agree to, so it’s not a freewheeling negotiation,” Quintal adds.

Find Experienced Legal Help

Tax attorneys know the standards and paperwork well. The deadlines are short, and the processes can be difficult to navigate, so be wary. “With all things taxes, the earlier, the better,” says Quintal. “If you get a notice, open it as soon as possible and contact legal counsel as soon as possible.”

Visit the Super Lawyers directory to find an experienced tax attorney in your area. For more information on this area of law, including tax filing deadlines and paying back taxes, see our tax law overview.