What Happens if You Don’t File Taxes On Time?

Posted by in Taxes | Updated on August 26, 2022

We all know that taxes have to be filed, no matter what. However, some people simply don’t have the best situation sometimes, and this makes it hard, if not impossible for them to file taxes on time. So, what happens if you don’t pay taxes on time?Here is what you need to know about the matter.

Difference Between Not Filing and Not Paying

There is a difference between not filing and not paying. Basically, the penalties involved for them are completely different, and not filing is a much worse scenario. If you don’t file your taxes, your penalty will be 5% of your unpaid taxes for each month you are late with your tax return, up to 25%. As soon as the tax deadline passes, the penalty starts accruing, more specifically the next day. If you are more than 60 days late with filing your taxes, then the minimum you will pay is $135, or you can pay 100% of the taxes you owe, depending on which is less.

Conversely, if you file your taxes but don’t pay them, the IRS will charge a failure-to-pay penalty, which is less severe compared to the failure-to-file penalty. It’s only 0.5% of your unpaid taxes for each month you don’t pay them, up to 25%. There’s also the interest that accrues on your unpaid taxes, and this is equal to the federal short-term rate, with an additional 3%. The total per month cannot be more than 5% if both penalties are running concurrently.

There are penalties only if you owe the IRS.

What If You Can’t File?

Sometimes, you can’t file your taxes. It just happens. Maybe you weren’t able to get all of the tax documents you need to file your taxes, or you just think you will not have the time to finish it up on time. What can you do in this situation to avoid a failure-to-file penalty? You can file an extension. Requesting an extension will give you an additional six months to file your taxes, helping you avoid the unwanted scenario of penalties.

To get an extension, you have to file out IRS Form 4868. Luckily, it’s not that difficult. You can either print a form from the IRS website, or you can simply file electronically. All you need to file is your name, Social Security number, address, and how much you think you’ll have to owe when you file. The extension will happen automatically.

On top of that, you also have to estimate your tax liability and make sure you pay some of it when you file the extension in case you owe anything. You might extend the time for filing your taxes, but you can’t extend the period to pay taxes, so make sure you still do your duty towards the IRS. If you don’t pay the amount due by the regular date, you’ll deal with interest. Penalties will be applied too.

It’s also very important to remember that even if you can’t pay, you should file if you can. Filing is important, or else you will deal with the consequences, which include piled-up interest and fees. You might also end up missing out on a refund, and you don’t want that. In case you cannot pay the money you owe, you have the option to apply for a payment plan with the IRS, which will then resolve your tax debt.

How to File for an Extension

File for an extension if you’re unable to file your taxes on time – but make sure you do this as soon as you can. The deadline for filing taxes is April 15, 2021.

In order to request an extension, you should file with IRS Form 1127. It should arrive at the IRS on or before the date that your tax is due. Apart from that, it’s essential to offer a full statement of all the liabilities and assets you owned at the end of last month, not to mention an itemized list of money you received and spent. This applies for the three months before sending in the request for an extension to pay.

Furthermore, you have to prove that if you paid the tax on the date it’s due, it would cause a lot of hardship in your life. Of course, this should be actual hardship, not a small inconvenience in your life, or else it will not qualify.

Lastly, you have to show evidence that if you pay the tax when it’s due, it will end up causing a great financial loss and that you do not have the money or cannot raise it by borrowing or selling property.

If your request gets approved, then you will get an extension of six months. The IRS will also ask for some acceptable form of security before you get the extension, which can usually be a notice of lien, bond, or other such things. It all depends on the circumstances of each individual.

Penalties for Not Filing

Penalties for not filing are different when it comes to owning taxes or getting a refund. Here’s what you need to know.

If You Owe Taxes

If you owe taxes and don’t pay them by the deadline, then you will have to deal with a late payment penalty of 0.5% per month, or a fraction of it until you pay the tax. Interest might also be charged on the amount you didn’t pay by the filing deadline. Also, the maximum late payment is 25% of the amount due.

Furthermore, if you didn’t get an extension either, you will have a late filing penalty of 5% of the unpaid tax per month, as well as interest. The maximum late filing penalty is 25% of the amount you owe.

If You Get a Refund

When you get a refund from the IRS, there isn’t any penalty for not filing your tax return by the deadline. Luckily, this applies even if no extension was applied for. But it’s different when it comes to state taxes.

There are some things to consider even if you are waiting for a refund. For instance, the statute of limitations for the IRS to audit your return will not begin until you file your return, which is why you should file as soon as possible. Also, you will not be able to get your money back until you file, and there are some tax elections that should be made by the due date, even when a refund is sent to an individual.

Warning about Statute of Limitations

Keep in mind that whether you owe taxes or you are due a refund, you should always file your return. Otherwise, there will be no limit on how many years the IRS can go back in order to assess and collect your taxes.

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Conclusion

Keep in mind what happens if you don’t file taxes on time, so you don’t end up in an unpleasant spot. Always file taxes on time and if you cannot do it for some reason, ask for an extension at the right time. Still, even when you file for an extension, you should continue to pay your taxes.


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