What are the penalties and interest for filing taxes late?

It’s April 19, and most Americans, except residents of Maine and Massachusetts, should have filed their tax returns by yesterday.

Of course, life is not that simple. About 20 million individual tax returns arrive each year between the official end of the fiscal season and the end of the year. Some taxpayers may have filed an extension, while others may have simply delayed the pain of the paperwork just to be surprised with a major financial penalty at the end.

When it comes to taxes, delaying the dreaded task of filing the return can result in hundreds of dollars in additional penalties.

If you expect to owe money and have not yet submitted it, here are the different penalties and fees that may exist, and ways to reduce them.

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Penalties for “non-submission”.

Sometimes people avoid filing tax returns because they worry about not being able to pay what they owe. That’s a mistake, said Martin Davidoff, a partner at accounting firm Prager Metis.

“What happens is people say, ‘My God, I can’t pay, so I’m not going to file the statement.’ That’s the worst thing in the world, ‘” Davidoff said. “Failure to do so will result in much greater penalties.”

The IRS penalty for not filing is 5% of the amount of tax due, imposed each month that the tax return is delayed.

“If a return is filed more than 60 days after the due date, the minimum penalty is $ 435 or 100% of the unpaid tax, whichever is less,” the IRS notes.

Penalties for late payment

There is also a penalty for late payment, but it is less punitive than not filing. This late payment penalty also depends on how much tax you still owe in relation to what you already paid.

“If you paid less, the IRS will want interest,” Davidoff said. Currently, the IRS interest rate is 4% per annum, compounded daily, on unpaid taxes.

“If you pay them less than 90% of your tax liability, plus 4% a year, there’s a half-percent penalty a month,” Davidoff said.

Therefore, if a taxpayer has not paid at least 90% of the tax he owes before the April deadline, “he is basically paying 10% a year in interest and non-deductible penalties,” Davidoff said.

Submit an extension, pay as much as you can

Because not filing taxes carries the most severe penalties, the IRS suggests that taxpayers who cannot pay the full amount they expect to owe, file their returns anyway, or file an extension, and pay what they can.

“Taxpayers who are thinking about missing the filing deadline because they can’t pay all the taxes they owe should consider filing and paying what they can to reduce interest and penalties,” the agency advises.

Taxpayers should make an effort to find out what they owe and pay what they can, CPA advises. Eric Bronnenkant, head of tax at Betterment, suggests that people use the previous year’s taxes as a starting point to determine how much they might owe.

“If your previous year is a good barometer for your current year, start with that as a way to make some sort of reasonable estimate,” Bronnenkant told CBS News recently. “Don’t let the perfect be the enemy of the good enough.”

Even if you have missed the submission deadline, you can avoid future strong penalties by filing it as soon as possible.

“The thing is, [the penalty is] allowed. Whether you’re a day late or 30 days late, it’s a month, “Davidoff said.” So make that return before May 15th. And even if you can’t afford it, at least you’ll have the statement filed for it. data. “

How much interest do you owe if you file an extension?

Taxpayers who file an extension and owe taxes will still have to pay interest, but will avoid having to pay penalties. Here is a simplified example of the difference.

If a taxpayer owes $ 2,000 in taxes and does not apply for an extension, they will pay 5% of the total amount to be paid for each month late as a penalty for not showing up, plus 4% daily compound interest.

Therefore, if this taxpayer files their return in July, three months after the April deadline, they will have to pay
$ 300 for not filing a return and $ 20 in interest, for a total of $ 320 in additional charges, in addition to the $ 2,000 tax bill that caused the problem.

If that person filed an extension and then paid their taxes three months later, they would still be subject to a fine and interest for insufficient payments, but that penalty would be less than $ 50, much less than the cost if they didn’t. file at all.

What if I owe you a refund?

If someone is owed a refund, there is usually no penalty for claiming late, but you only have one within three years to pick it up.

“If you wait too long to file a refund, you will lose the refund,” said Nina Olson, founder of the Taxpayer Rights Center and a former national taxpayer advocate. “So even if you have a refund after one year you could apply to another [year when you owe taxes]if you wait too long to file this return, you will not have this refund to apply to your overdue tax debt. “

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