What Happens When You File Taxes Late

IRS Tax Filing Penalties

Penalty Type	Rate	When It Starts	Maximum
Failure-to-File	5% of unpaid taxes per month or partial month	Day after the April 15 deadline (or October 15 if extension was filed)	25% of unpaid taxes
Failure-to-Pay	0.5% of unpaid taxes per month or partial month	Day after the April 15 deadline	25% of unpaid taxes
Minimum Penalty (60+ days late)	$525 or 100% of unpaid tax, whichever is smaller	60 days after the April 15 deadline or extension date	100% of unpaid tax
Interest on Unpaid Taxes	Federal short-term rate + 3%, compounded daily	Original return due date	No cap

Failure-to-File Penalty

A failure-to-file penalty applies to anyone who files taxes late. This might be after the April deadline or, for people who have applied for an extension, after an extension due date.

The failure-to-file penalty is typically 5% of all unpaid taxes for every month or partial month after the due date until the IRS receives your tax return.

The failure-to-file penalty starts accumulating the day after the April deadline or, if an extension is filed, the day after the October deadline (usually October 15th).

If you file your tax return more than 60 days past the April deadline or your extension date, the minimum penalty you will pay is $525 or 100% of the unpaid tax (whichever is smaller). This penalty is limited to 25% of your unpaid tax.

Failure-to-Pay Penalty

If you don't pay any taxes owed by the April tax deadline, you may also incur a failure-to-pay penalty. This penalty typically costs 0.5% of your unpaid taxes for every month or partial month your payment is overdue. The failure-to-pay penalty also accrues from the day after the April deadline.

However, if you're supposed to pay both a failure-to-file penalty and a failure-to-pay penalty in any month, the failure-to-file penalty will be reduced by the amount of the failure-to-pay penalty applied in that month. So, instead of a 5% failure-to-file penalty for the month, the IRS would apply a 4.5% failure-to-file penalty and a 0.5% failure-to-pay penalty. You might notice that failure-to-file penalties are 10 times greater than failure-to-pay penalties. For this reason, it's important to always file your tax forms, even if you can't pay your tax bill at the time you file.

How to Reduce or Avoid Late Tax Penalties

There are a number of ways to reduce or avoid IRS penalties for late filing and late payment:

• File and pay your taxes before the April deadline. This is the most obvious way to avoid penalties. You can file electronically through E-file.com in minutes. Filing early also helps you plan for any tax bill you may have.
• Get an extension from the IRS. While you can't get an extension on paying your taxes, the IRS will grant extensions on filing. This must be granted before the April deadline, so make sure you file an application early. If you request an extension and pay at least 90% of your taxes owed, you may avoid a failure-to-pay penalty as well as the failure-to-file penalty, providing all taxes are paid by your extended due date.
• Make a partial tax payment. Don't think that because you can't pay your taxes in full, you shouldn't pay anything. Pay as much as you can by the due date. This will reduce your failure-to-pay penalty.
• Explore other payment options. You could get a loan or use a credit card to cover your taxes or set up an installment agreement (payment plan) with the IRS.
• Prove reasonable cause for not filing on time. If you can prove to the IRS that you have a good reason for not filing your tax form or paying your taxes by the deadline, you can sometimes avoid the penalties. Such cases may include natural disasters, serious illness, or serving in the Armed Forces.

Interest Charges on Unpaid Taxes

The IRS will also charge you for the interest it would normally receive on the tax you haven't paid. Interest compounds daily and is calculated from the date your return is due until the date your taxes are paid in full.

The interest rate is recalculated every quarter by adding 3% to the federal short-term interest rate. Because the federal short-term rate changes quarterly, the effective IRS interest rate also changes. For current rates, see IRS Quarterly Interest Rates.

What If You're Owed a Refund?

If you're getting a tax refund, you won't receive any penalty for filing late so long as you file your tax forms within three years of their deadline.

However, if you wait longer than three years, you will forfeit your unclaimed tax refund. This money will become the property of the U.S. Treasury and cannot be reclaimed.

What Happens If You Keep Ignoring the IRS

If you continually fail to file and pay your taxes, the IRS may levy certain assets or income sources through the Federal Payment Levy Program to collect unpaid tax debt. The IRS must notify you of its intended action, but if you do not respond after receiving required notices, the IRS may begin enforced collection, including:

• Seizing your Social Security.
• File a federal tax lien on property you own (house, car, income, bank account).
• Commencing court proceedings. If you're found to have willfully failed to file your tax returns, you could serve jail time.

Fortunately, several steps must occur before such drastic actions take place. The IRS must first send you a Notice and Demand for Payment regarding your tax bill. If you don't pay it, then they're required to send you a Final Notice of Intent to Levy, plus a Notice of Your Right to a Hearing. These documents must be sent at least 30 days before a levy is issued.

Filing your tax return by the April deadline is the easiest way to avoid penalties from the IRS. If this is not an option, filing for an extension and paying your entire tax bill before the April deadline is also a good way to avoid penalties. Even when you cannot pay your entire bill, it is important to file your return or extension on time.

Every month you wait costs you more. Filing a tax extension through E-file.com takes minutes and moves your deadline to October 15, giving you time to file your return right, without the failure-to-file penalty continuing to accrue.

Frequently Asked Questions

Can the IRS take all the money in your bank account?

In extreme circumstances, the IRS can issue a levy on your property to help satisfy unpaid tax debts. This includes money in your bank account, as well as funds in your retirement account. The IRS can also seize physical property, like your car, in order to sell and pay off tax debt.

Can the IRS waive my penalty for filing late?

Yes, in two main ways. First, if you have a clean compliance history for the three prior tax years, you may qualify for the IRS's First-Time Abatement (FTA) waiver. Second, you can request relief by showing reasonable cause, such as a serious illness, natural disaster, or other circumstances beyond your control. If you believe you qualify and the abatement wasn't applied automatically, call the number on your IRS notice or submit Form 843.

How late can you file taxes without a penalty?

If you're owed a refund, there's no penalty for filing late as long as you file within three years of the original deadline. If you owe taxes, the failure-to-file penalty begins the day after the April 15 deadline (or October 15 if you filed an extension). The only way to avoid that penalty entirely is to file on time or request an extension before the April deadline.