The October 15th deadline is fast approaching for taxpayers who filed Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. State tax extension deadlines vary by state. Alabama's deadline is the same date as the federal deadline. Special tax extension deadlines were approved for certain members of the military serving in combat zones, taxpayers living outside the U.S., and those living in declared disaster areas, if they qualified.
Although some taxpayers were given at least six extra months to file their taxes, they are still procrastinating. Many have misplaced their W-2's, 1099's, and other financial documents. Or they may be still trying to gather and organize their expense receipts. At some point, some taxpayers will realize or decide that they are going to submit their return after October 15, 2019.
If you are going to miss the extension deadline, don't panic. But plan to file as soon as you can. However, there are a few things you should keep in mind. If you started or plan to prepare your return using one of the free online tax preparation programs, most of them will shut-down within days after the October 15th deadline. You may or not be given the option to access and print your saved return. Alternatively, you may be required to purchase a premium plan to complete or submit a new one. If you use a paid preparer, they may charge extra to perform off-season work.
There are also a few things you should keep in mind with regards to penalties and interest. There is no penalty for filing late if you are owed a refund. You must file your taxes within three years of the original deadline to claim your refund or you will lose your right to it. However, it is a different story if you owe taxes.
Here are some 10 common facts about owing taxes, penalties, and interest:
- Two penalties may apply. One penalty is for filing late and the other is for paying late. Interest accrues on top of penalties for any unpaid tax from the due date of the return until payment is made in full.
- Penalty for late filing. The late filing penalty or failure-to-file penalty is usually 5 percent of tax for the year that’s not paid by the original return due date. The penalty is charged for each month or part of a month that a tax return is late.
But if the return is more than 60 days late, there is a minimum penalty, either $210 or 100 percent of the unpaid tax, whichever is less. For returns due on or after 1/1/2020, the minimum increases to $215.
- Penalty for late payment. The late penalty or failure-to-pay is generally 5 percent of taxpayers’ unpaid taxes per month. It can build up to as much as 25 percent of their unpaid taxes.
- Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.
- Taxpayers should file even if they can’t pay. By filing on time and paying what you can lowers penalty and interest charges. Typically, the penalty for filing late is 10 times higher than the penalty for paying late.
If you can’t pay in full, you might consider getting a loan from family, friends, or bank. It may be less expensive than owing the IRS.
- Other penalties. There are other common penalties and interest fees associated with filing taxes, such as the failure to pay tax on income not reported on original return penalty and the dishonored payment penalty. For a more detailed explanation of how the IRS calculate these common penalties presented in this article, see Understanding Penalties and Interest.
For an expanded list of penalties and interest associated with underpayment of taxes, see Notice 746: Information about Your Notice, Penalty and Interest.
- Penalty relief and waivers. The IRS offers penalty relief to taxpayers "if you made an effort to comply with the requirements of the law, but were unable to meet your tax obligations due to circumstances beyond your control". For example, taxpayers will not have to pay a failure-to-file penalty or failure-to-pay penalty if they can show reasonable cause for not filing or paying on time.
The IRS ... expanded the penalty waiver for those whose 2018 tax withholding and estimated tax payments fell short of their total tax liability for the year. The penalty will generally be waived for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.
The IRS does not abate interest because its charged by law. Therefore, it will continue to accrue until your taxes are fully paid.
See other penalty relief options.
- Payment options. The IRS offers several ways a taxpayer can resolve their tax debt.
- Mail a check or money order payable to the “United States Treasury” along with Form 1040-V, Payment Voucher. Or individuals can pay directly from a checking or savings account using IRS Direct Pay.
- Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov. Alternatively, you can download Form 9465, Installment Agreement Request which should be mailed to the IRS along with a tax return, IRS bill, or notice.
- Taxpayers dealing with financial hardship may request a temporary delay in collection until their financial situation improves or use the Offer in Compromise Pre-Qualifier tool to determine if they are eligible to settle their tax debt for less than the full amount.
- Correspondence. The IRS sends notices and letters if you have a balance due and various other reasons. Each contains a lot of valuable information, so all correspondence carefully. Don't procrastinate. Respond immediately and/or contact your tax professional. That way you can minimize additional interest and penalty charges and preserve your right to appeal rights if you don’t agree. Always, keep a copy of all notices or letters and your response with your tax records.
If you are unsure if you owe money to the IRS, view your tax account information on IRS.gov.
- State penalties and interest. If you owe taxes on your state return, check their Department of Revenue website for info about penalties, interest, waivers, and payment options.
If you miss the tax October 15th tax extension deadline, Don't panic ... Don't procrastinate ... Decide it's time to act. Submit any unfiled returns, pay what you can, and/or make some type of payment arrangement. Remember, penalties, and fees may increase for each month that you continue to do nothing!
"Application for Automatic Extension of Time To File U.S. Individual Income Tax Return." Internal Revenue Service, https://www.irs.gov/pub/irs-pdf/f4868.pdf.
"Important Facts about Filing Late and Paying Penalties." Internal Revenue Service, IRS Tax Tip 2017-51, April 20, 2017, https://www.irs.gov/newsroom/important-facts-about-filing-late-and-paying-penalties.
"IRS warns of higher penalty for some tax returns filed after June 14." Internal Revenue Service, IR-2019-106, June 7, 2019, https://www.irs.gov/newsroom/irs-warns-of-higher-penalty-for-some-tax-returns-filed-after-june-14.
"Notice 746: Information about Your Notice, Penalty and Interest." Internal Revenue Service, https://www.irs.gov/pub/irs-pdf/n746.pdf.
"Paying Your Taxes." Internal Revenue Service, https://www.irs.gov/payments.
"Penalty Relief." Internal Revenue Service, https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief.
"Understanding Penalties and Interest." Internal Revenue Service, https://www.irs.gov/businesses/small-businesses-self-employed/understanding-penalties-and-interest.
"Understanding Your IRS Notice or Letter." Internal Revenue Service, https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter.
"View Your Tax Account." Internal Revenue Service, https://www.irs.gov/payments/view-your-tax-account.