The annual tax filing deadline has come and gone and if you haven’t filed yet, you’ll need to act fast. The IRS begins assessing penalties and interest against late filers right away, which can easily inflate your tax bill. Whether you owe taxes or you’re expecting a refund, you need to know what your rights and responsibilities are if you’re filing a late return.
Late Filing Penalties
The IRS assesses two kinds of penalties against late-filers: a failure-to-file penalty and a failure-to-pay penalty. As of 2013, the failure-to-file penalty is five percent of any unpaid taxes for every month your return is late, up to a maximum of 25 percent. If you’re filing more than 60 days late, the minimum failure-to-file penalty is $135 or 100 percent of the unpaid taxes due.
Filing an extension allows you to avoid the failure-to-file penalty but you’ll still be subject to a penalty if you owe taxes. If you don’t pay by the filing deadline, you’ll face a failure-to-pay penalty, which is one-half of one percent of the amount due for every month you’re late. The IRS can penalize you up to a maximum of 25 percent of the unpaid taxes owed. If you filed an extension, you can avoid the failure-to-pay penalty if you paid at least 90 percent of the taxes due by the April filing date and the rest is paid by the extension deadline.
Late Filing Exceptions
The IRS makes an exception for late filers who are out of the country on the April filing deadline. If you live and work outside of the U.S. or Puerto Rico or if you’re serving in the military oversees, you’re allowed an additional two months to file your return and pay any taxes owed without having to file an extension. You can file an extension if you need more time to file but you’ll have to pay any amount due to avoid a penalty.
For 2013, the IRS is also extending the filing deadline without penalty for certain taxpayers who were impacted by unforeseen circumstances. Due to the recent marathon bombings, tax relief is available for residents of Boston and Suffolk County, Massachusetts. The deadline has also been extended for taxpayers who were affected by severe weather in the Midwest or South that occurred on or just prior to the filing deadline.
If a Refund is Due
If you’ve got a refund coming your way, you can breathe a little easier if you have to file late. Since you don’t owe taxes, there’s nothing for the IRS to assess interest on and there’s no penalty to worry about. You don’t even have to file an extension. You do, however, need to be aware that there is a three-year statute of limitations on how long you have to collect your money. For example, if you haven’t filed your 2012 return yet, you’ll have until April 15, 2016 to get it in. Just keep in mind that if you don’t file before the cutoff date, the IRS gets to keep your refund.
If You Can’t Pay in Full
The IRS strongly encourages taxpayers to pay as much of their taxes due as possible, even when filing late in order to minimize penalties and interest. Putting off filing because you’re not able to pay the balance in full will only make dealing with the situation more difficult. In the worst-case scenario, the IRS could require you to sell certain assets, levy your bank account, garnish your wages or place a lien against your property, all of which could have a devastating impact on your finances and your credit.
If you’re not able to pay your tax bill in full, you may be able to set up an Installment Agreement with the IRS. This allows you to make monthly payments towards your tax debt and avoid serious collection actions. During the repayment period, interest will continue to accrue but you can potentially reduce or eliminate penalties on the unpaid taxes. If you owe less than $50,000, you can apply online; otherwise, you’ll need to complete Form 9465, Installment Agreement Request. If the IRS agrees to an Installment Agreement, you’ll need to make your payments as scheduled to avoid collection efforts. Additional information on setting up a payment plan or installment agreement can be found on our website.
The Bottom Line
Filing your tax return late isn’t the end of the world but the longer you wait, the more money you may have to fork over to Uncle Sam. It could also potentially put your property, bank accounts and other assets at risk. When it comes to your taxes, it’s always better to file late than never.