What if I miss an individual tax deadline?

tax-penalty

You’ll be fine, but you may have some catching up to do.

Every year in April, you start seeing reminders on social media: Tax Day is coming up! Don’t forget to file your individual tax return!

That’s a good idea, obviously, but what actually happens if you don’t?


The basics

  • IRS has deadlines for individual tax returns – usually April 15th
  • If you’re owed a refund, they don’t actually care if you miss a filing deadline. But if you owe them money, they will let you know
  • You can get an extension, but that’s just extra time to file, not extra time to pay
  • If you have trouble paying, the IRS can figure out a payment plan or some other accommodation

Deadlines? What deadlines?

There are many different types of tax deadlines, for many different types of returns, but we’re just focusing on the big one for individuals: April 15th, the infamous Tax Day.

📑Note: If April 15th is a weekend or holiday, Tax Day may be moved to accommodate. This year, it was Tuesday, April 18th. April 15th fell on the weekend, and Monday was a holiday.


Filing vs payment deadlines

It’s not immediately obvious that there are actually two separate deadlines on Tax Day: the filing deadline, and the payment deadline. They’re on the same day, but they’re not the same thing!

For instance, if you file an extension, you have additional time to file your tax return, but any payments owed are still due on the same day. You should always try to pay what you owe on time (or at least a solid chunk of it).

What happens if I miss a deadline?

If you miss a deadline, it may or may not be a very big deal, depending on your particular tax situation.

If you’re getting a refund

For those of you that will be getting a refund on your taxes this year, congratulations! You’re probably not going to get slapped with any penalties. When it comes to individual tax returns, the IRS would certainly prefer you file on time no matter what, but they’re unlikely to be coming after you unless you owe them a fair bit of money.

However, you can’t claim your refund until you file, so the big consequence here is that you’re delaying your own payout. You can claim your refund up to three years after the fact, but why would you want to do that? Just file your tax return.

Fun fact: if you file and pay on time, and you’re supposed to get a refund, the IRS could actually end up owing you interest if they’re late enough on your refund.

If you owe

When you have an outstanding balance with the IRS, filing late is not the best move. An extra 5% will be added to your tax liability for every month it’s late, plus interest (which we’ll cover in a moment).

If you know you’re going to owe money to the IRS, you should be filing and paying on time or securing an extension.

Penalties

If you don’t file your tax return on time, don’t pay owed taxes on time, or don’t prepare an accurate return, you may be subject to IRS penalties.

You’ll know when you have these penalties, and what they are, because they’ll mail you! That’ll include a charge, an identification number, and what to do next.

Types of penalties

The penalties can get very gritty and specific, but we’ll go through the most common and basic penalties.

  • Failure to file: If you don’t file a tax return at all, the penalty is 5% of owed taxes per month, up to a maximum of 25%
  • Failure to pay: If you don’t pay your taxes, or only pay part of your tax bill, the penalty is 0.5% of owed taxes per month, up to a maximum of 25%
  • Accuracy-related penalty: If you understate your owed taxes and fail to pay the full amount as a result, your penalty will be 20% of the unpaid portion of your tax bill.

How to handle a penalty

First things first: don’t panic. The IRS doesn’t want to ruin your life, they just want your paperwork and your tax obligation.

There are a few options on how to proceed with that.

Pay it

Whoops, you forgot to pay your taxes. Or something. Whatever the reason, you didn’t pay, but you have the money. In that case, you can just pay what you owe and be done with the matter. Lesson learned for next time.

Keep in mind that, by just going ahead and paying, you are confirming that you agree with whatever notice the IRS has sent you.

Reduce or remove it

If you did, in fact, fail to meet your tax obligations, but you had a good reason, you can apply to have the penalty reduced or removed.

Valid examples of reasonable cause for failure to file or pay include natural disasters, inability to get ahold of necessary records, or a serious illness. A few things that aren’t valid reasons for failure to file or pay: reliance on a tax professional, lack of knowledge, or lack of funds.

You can also qualify for penalty relief if you receive an accuracy-related penalty but made a good-faith effort to submit an accurate return. In this case, a particularly complex tax issue or an incompetent tax professional may count.

If the IRS rejects your request to have a penalty removed or reduced, you have 30 days to file an appeal.

Dispute it

What if you don’t just want a penalty removed, you want the IRS to admit that they never should have issued a penalty in the first place?

In that case, you can dispute the IRS penalty. File Form 12009 to get the appeals process started, but be prepared to prove you don’t deserve the penalty.

Avoid ever getting any penalties

Sometimes the best solution is to just avoid the problem in the first place. If you file and pay your taxes on time, you won’t get a penalty.

However, if you know you won’t be able to meet your tax obligations in time, it’s best to apply for an extension or a payment plan as early as possible.

Keep in mind, extra time to file does not mean extra time to pay. An extension only applies to the return, not the tax bill. If you need to pay, but you won’t have your tax return – and therefore your final tax liability – finished yet, there are a few things you can do.

If your adjusted gross income (AGI) in the previous year was less than $150,000 (or $75,000 if married, filing separately), you can avoid any underpayment penalties by paying at least 90% of the tax you owe this year or 100% of the tax you owed last year, whichever is lower.

And if your AGI last year was above $150,000 (or, once again, $75,000 if married, filing separately) you can avoid underpayment penalties by paying at least 110% of the tax bill shown on last year’s return.

If none of those are options at the moment, you can also apply for a payment plan.

The bottom line

You should file and pay your taxes on time. But if you don’t, the IRS has put many different options on the table to get you back on track.

Want to avoid the problem altogether? Talk to DiMercurio Advisors about handling your taxes. We’ll make sure you’re able to file your tax return accurately and on time.

Schedule a call

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