Did you miss this year’s personal tax filing deadline?

Unfortunately, the IRS does not simply look the other way with regard to taxpayers missing the tax filing deadline.  Not filing your taxes by the due date will result in the following assessed IRS penalties for many taxpayers:

  • The Failure to File penalty equals 5% of the tax owed for each month that the tax return is late in being filed and is capped at five months time (and reduced by the assessed Failure to Pay penalty).
  • The Failure to Pay penalty equals 0.5% of the unpaid tax owed by the taxpayer until paid in full and is capped at 25% of the unpaid tax.

In addition to the penalties noted above, the IRS also charges interest on the tax balance owed after the due date, plus interest on the accessed penalties unpaid.  IRS interest assessed is calculated by adding 3% to the federal short-term rate.  The current IRS interest rate is approximately 5%.

As these assessed IRS penalties plus interest can quickly increase your existing tax balance owed, we recommend filing as soon as possible after the missed tax filing deadline.

However, for taxpayers due a refund, there is no Failure to File penalty or other penalty assessed by the IRS.

Filing an extension allows taxpayers to file late, but does not allow taxpayers to pay late: 

The primary benefit of fling an extension of time to file your taxes is that the taxpayer will be granted an additional 6 months of time to compile all their tax information in order to prepare their personal tax return.  However, this extension of time to file, does not allow taxpayers to pay their taxes after the due date.  Taxpayers should estimate as accurately as possible the taxes owed as of the due date and make that payment by the due date with the extension being filed.  Owing taxes after the due date once the tax return is eventually completed will result in the taxpayer being assessed a Failure to Pay penalty plus interest.

However, for taxpayers that filed an extension and paid the estimated tax balance owed by the extension filing due date, if at least 90% of taxes were paid in by the due date, then generally there would be no Failure to Pay penalty assessed once the tax return is eventually completed and filed.

Penalty relief for certain late filers: 

Taxpayers that have a “clean” IRS penalty history can apply for penalty abatement from the late filing and late payment penalties assessed by the IRS if the following conditions are met:

  1. No tax penalties in the 3 prior tax years,
  2. All prior year tax returns have been timely filed, and
  3. Prior taxes have been paid or are arranged to being paid.

This penalty waiver process is known as the IRS’s First Time Penalty Abatement policy.  Additionally, if the abatement proves successful, any interest assessed on the penalty will also be waived as well.  

Can’t pay your tax bill?

If you owe the IRS more than you can afford to pay once your tax return is prepared or if additional taxes are owed related to an IRS tax notice, the IRS allows qualifying taxpayers to apply for a Long-Term Payment plan, commonly known as an Installment Agreement.

If the tax balance owed by the taxpayer exceeds $25,000 then monthly payments must be made via auto withdrawals from their bank account.  This EFT payment method is referred to as the Direct Debit Installment Agreement (DDIA).  If the tax balance owed is $25,000 or less, taxpayers have the choice of making their monthly loan payments either via checks mailed to the IRS or via DDIA.

The IRS charges a setup fee for the installment agreement.  If the installment agreement application is applied on-line there is a $31 setup fee for DDIA and a $130 setup fee if non-automated payments are to be made monthly.

Applying on-line for an IRS payment plan can be done on the IRS website at the link below:

Online Payment Agreement Application | Internal Revenue Service (irs.gov)

Benefits to paying taxes on the IRS website: 

The IRS makes it easy for taxpayers to pay electronically via EFT from taxpayers’ bank accounts for taxes owed and estimated taxes.  This process is known as Direct Pay on the IRS website.  When paying online, the taxpayer receives an immediate confirmation of the payment made plus an email confirmation as well.  On the IRS website, taxpayers can also sign up to view their tax payment history.

Making an immediate online EFT payment can relieve the stress of checking your bank account daily waiting to see when your IRS payment check (balance due or estimated tax payment) has cleared.  The IRS link to pay via Direct Pay is at the link below:

Direct Pay | Internal Revenue Service (irs.gov)