As the tax season approaches, it’s crucial to remember the looming deadline and understand the potential consequences of failing to meet it. Forgetting to file your taxes can lead to various issues, including penalties and interest charges. In this detailed guide, we will explore the repercussions of missing the tax filing deadline and provide valuable insights on how to address the situation. Whether you’re a taxpayer who owes money to the government or one expecting a refund, understanding the consequences is crucial.

Late Filing Vs. Late Payment

The tax filing deadline is typically April 15th each year. However, for the 2022 tax year, the deadline was extended to April 18th for most individuals. It’s crucial to distinguish between late filing and late payment:

Late Filing: This refers to not submitting your tax return by the deadline.

Late Payment: This occurs when you owe taxes but fail to pay them by the due date.

Understanding this distinction is vital because the consequences and actions you should take differ depending on whether you’re late in filing or late in paying.

No Taxes Owed or Tax Refund

For many Americans, filing taxes results in a refund because they’ve paid more in taxes throughout the year than they owe. In such cases, if you forget to file your taxes, there’s generally no penalty. However, there’s a catch—you won’t receive your tax refund until you do file your taxes.

The IRS allows you three years to file your taxes and claim your refund. If you miss this window, you’ll forfeit any refund owed to you. Therefore, even if you have no taxes owed, it’s essential to promptly file your taxes to receive any refunds you’re entitled to.

Owing Taxes

If you owe taxes to the government and miss the filing deadline, you may start facing penalties. However, there is a way to mitigate some of these penalties—filing for a tax extension.

A tax extension gives you an additional six months to file your taxes, allowing extra time to get everything in order. This extension prevents the government from penalizing you for failing to file on time. However, it’s crucial to note that the extension only applies to the filing deadline, not the payment deadline. Your tax payment is still due by April 18th, regardless of when you file. Potential penalties and interest may apply for not making your payment on time, regardless of whether you’ve extended your filing deadline.

Failure to File Penalties

When you don’t file for an extension or fail to file by the extended deadline, you’ll start facing failure to file penalties. These penalties result in a 5 percent penalty on any unpaid taxes each month, capping at 25 percent. Here’s a breakdown of how these penalties accumulate:

• First month: 5 percent of tax liability
• Second month: 5 percent of tax liability
• Third month: 5 percent of tax liability
• Fourth month: 5 percent of tax liability
• Fifth month: 5 percent of tax liability

After 60 days of being late, the minimum failure to file a penalty is $435 or 100 percent of your tax liability, whichever is less. While some exemptions, such as natural disasters and military service, may lead to forgiveness of failure to file penalties, it’s generally expected that you’ll pay the penalty. In rare cases, the IRS may even recommend jail time for individuals who fail to file their taxes.

Keep in mind that state laws regarding failure to file can vary considerably, so it’s essential to check what your local laws are for this situation.

Penalties for Late Tax Payments

If you file your taxes but fail to pay the owed amount on time, penalties will be incurred. The IRS imposes a penalty of 0.5 percent of your total tax liability for each month that the full payment is not made, reaching a maximum of 25 percent. Additionally, interest starts accumulating on unpaid taxes from the due date.

To minimize these penalties, it is crucial to settle your owed taxes promptly. By paying down your tax liability quickly, you reduce the amount subject to interest, resulting in a less severe failure-to-pay penalty. However, allowing it to accumulate over the long term can lead to substantial and significant fines.

In rare instances, the IRS may pursue legal action, potentially resulting in imprisonment for those failing to pay taxes. This outcome is highly uncommon, especially for smaller tax bills. To avoid such consequences, it’s essential to address your tax obligations promptly.

Similar to failure-to-file penalties, state laws vary significantly, so it’s important to consult local regulations regarding late tax payments.

Haven’t Paid Taxes in Years

If you haven’t paid your taxes in years, it is possible that the IRS will seek to recover those funds from you in a number of ways. These actions may include:

• Wage Garnishment: The IRS can garnish wages from your paycheck to collect unpaid taxes.
• Property Liens: They can place a lien on your home or other high-value property.
• Bank Account Seizure: The IRS may seize funds directly from your bank account.
• Withholding Future Tax Returns: Your future tax returns may be withheld until your tax bill has been paid down.

There are other penalties you may face as well. For instance, if you owe more than $55,000 in taxes, the government can refuse to issue you a passport. Additionally, the IRS may choose to refer your outstanding tax payment to a private collections agency, which will likely be much more aggressive in trying to recover the funds.

It’s crucial to be aware that there exists a 10-year statute of limitations on unpaid taxes. This means that, in most instances, the IRS is unable to pursue taxes owed that date back more than a decade. While there are exceptions, the majority of cases require the agency to cease its collection efforts.

Steps to Take When Behind on Taxes

If you have fallen behind on your taxes or haven’t paid your taxes in years, there are several steps you can take to help alleviate the consequences of unpaid tax liabilities:

Determine How Much You Owe: Before you can start paying, you need to know exactly how much you owe the IRS. You can determine this by requesting your transcripts from the IRS. Even if you haven’t filed taxes in years, you will be able to see the information the IRS has on hand and determine how much you owe based on that information.

File Your Taxes: If you haven’t filed your taxes yet, it is best to do so as soon as possible. Contact your employers and ask for a copy of your tax documents. They should have them on hand and be able to provide these records. Upon filing, you may find that you are owed a refund that can help to lessen your overall tax bill.

Negotiate a Smaller Payment: If you inform the IRS that you cannot pay, it may be open to negotiating a smaller payment. Oftentimes, the IRS will lessen your overall tax burden if you are willing to pay in a lump sum.

If you’re dealing with tax issues and need professional assistance, Tax Rise offers tax resolution services to help you navigate your tax problems effectively. Don’t let tax troubles overwhelm you; take control of your financial situation today! Contact us for a Free Tax Consultation to get started on resolving your tax matters.