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Missed the Deadline to File Taxes? It’s Going to Cost You.

Updated: Sep 21


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This year, May 17 is the last day to request an extension to file your tax returns. So if you miss the deadline to file your tax returns — and still haven’t made any payments — you can expect to owe a lot to the IRS.

The Internal Revenue Service requires taxpayers to file and pay their taxes by the annual deadline unless the taxpayer can provide valid “reasonable cause” for not being able to do so. If you don't, interest begins to accrue on any unpaid balance, and penalties can be imposed for failing to pay and file your taxes (#failuretofile). Interest accrues daily until the entire unpaid balance is paid in full. The interest rate (for non-corporate entities) is determined by the federal short-term rate, plus 3 percentage points. The federal short-term rate, which is calculated every three months, has remained the same (3%) for the quarter beginning on April 1, 2021, the IRS confirmed in March.

Failing to pay, in and of itself, can also be penalized with a charge of 0.5% of the taxes owed after the due date. This penalty is charged “for each month or part of a month” that taxes aren’t paid, according to the IRS. This rate increases to 1% if the IRS has informed a taxpayer of a final notice to levy or seize property (beginning 10 days after the notice is issued). However, taxpayers with IRS installment agreements will be charged interest at only half the standard rate (0.25%).

Similarly, failure to file taxes (barring any valid reasonable cause, such as incapacitation or a natural disaster) is penalized with a charge of 5% of the unpaid tax amount for each month, or part of a month, that the return is late. The charge will not exceed 25% of the unpaid tax amount, which is calculated based on the amount owed less any withholding, any estimated tax payments or any refundable credits. However, there is a “minimum failure-to-file penalty” for taxpayers whose filings are not received after 60 days of the due date: $435, or 100% of the required taxes shown on the return, whichever amount is less. If you do not file your tax returns, eventually the IRS will create a tax debt through a mechanism known as a "Substitute for Return" or "SFR." An SFR is an inflated tax debt that allows the IRS to enforce collection. With an SFR, the IRS can levy your wages, your bank account, your Social Security, your Veterans Pension, and seize just about any other asset you may have. A Substitute for Return can be challenged and a taxpayer may be allowed to file a "fresh tax return." A fresh tax return would result in the "failure to file" penalties to be reversed out which would greatly reduce the tax debt in question. If a taxpayer fails to pay and file taxes in the same month, the total penalty still will not exceed 5%, up to a total of 25%. After five months, when the 25% threshold is reached, the penalty “will max out” for failure to file, but penalties for failing to pay will continue. The maximum penalty, for both failing to pay and file, can reach 47.5% of the tax, in total. The penalty re-starts every January and runs through the month of May.

The bottom line is this, the sooner you file your late tax returns, the better.

On the other hand, if you owe no taxes or you’re owed a refund, the IRS won’t penalize you for failure to file. Refunds are forfeited to the government after three (3) years.

“If, however, you wait too long to file your return and claim a refund, you risk losing it altogether,” David Alito, the IRS Wage and Investment Division Deputy Commissioner, explained in a May 14 post to the agency’s website. As Alito noted, returns generally need to be filed within three years of the due date for any refunds to be issued.

“If you don’t, the money (refund) is forfeited, by law, and becomes property of the U.S. Treasury,” he wrote.

This article is brought to you by the tax professionals at Flat Fee Tax Relief. Licensed in all 50 states, our teams are strategically located in Clearwater, Florida, and San Diego, California. We take full advantage of the time zone differences to help our clients.


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