What happens if you file taxes late?
Missing the tax deadline isn’t ideal, but it’s usually not the end of the world. Everyone’s taxes are different, and the consequences of filing taxes late vary based on the amount you owe, how late you filed your tax forms, and other factors. One of the first decision points is based on whether or not you requested a tax extension.
If you requested a tax deadline extension
If you know you will file late, you can complete Form 4868 to request an extension. You don’t need to give any reason for why you’re filing late—if you complete this form, you get an automatic extension until October 15 to file your taxes without the late-filing penalty.
However, keep in mind that even if you receive the extension, you’re still required to make tax payments on time—in other words, if you know you’re going to owe taxes, you still are required to pay what you owe (or an estimate) by the standard deadline. If you don’t, you may incur other penalties.
If you’re a business owner who’s required to make quarterly estimated tax payments, you should still make your estimated tax payments on schedule regardless of your extension request.
It’s important to note that regardless of whether you’re granted the extension or not, you’ll still owe all your taxes, plus interest. Interest can add up fast, particularly on large balances, so don’t delay paying what you expect to owe if you’re able.
If your tax software doesn’t calculate this automatically, the IRS will do the honors and tell you their estimate of how much you owe via an official letter through regular U.S. mail.
If you did not request an extension, or you miss the extension deadline
If you didn’t request an extension or filed your extension request late, you will most likely owe penalties plus interest if you owe taxes. The IRS charges as much as 10 times more to late filers who don’t complete the form for an automatic extension.
The late-filing, or Failure to File, Penalty is five percent of your unpaid tax balance per month. The late-payment penalty is 0.5 percent per month. If that’s overwhelming, here’s some good news: you won’t necessarily have to pay the entire balance right away if you can’t afford to do so—more on that in a moment.
While you may have seen the IRS arrest tax evaders in the movies, that’s extremely unlikely to happen to a typical tax filer, even if they are years late on paying their taxes. Because many people file taxes late, there are clear processes to guide you.
In the vast majority of cases, the worst thing that happens when you don’t file for an extension and file your taxes late is that you have to pay the taxes you already owed, plus interest and penalties.
Further reading: How Long Can You Go Without Filing Taxes
How to file your taxes late
If you have a past-due return, it's best to file it even if you cannot immediately pay your tax bill in full. File a late return the same way you would file an on-time return—either with your accountant or a tax professional, e-filing software, or by mail.
If you owe taxes, you have several options. If you have the money to pay right away, it’s best to do that to avoid future interest and penalties.
Paying the full amount owed
If you’re able to pay the full amount, you can pay online using a bank account, debit card, credit card, or digital wallet service like PayPal. Payments by check or online payments from your bank account using IRS Direct Pay are fee-free. Additional processing fees apply if you pay by credit card, debit card, or digital wallet.
Businesses or individuals with an account on the Electronic Federal Tax Payment System (EFTPS) can make payments through that system with a bank account as well.
Online payments with IRS Direct Pay using a bank account are the best option for most payers due to convenience and cost. Direct Pay is down for maintenance daily from 11:45 p.m. to midnight Eastern Time. It remains offline from 11:45 p.m. until 7:00 a.m. on Sundays. You should be able to make a payment during regular business hours anywhere in the United States.
Paying via a payment plan
When you don’t have the funds to pay your entire tax bill, you may need to negotiate a tax payment plan. Here, individuals and businesses go through different processes. Your exact steps may vary depending on how you file your taxes and structure your business.
If you owe less than $100,000, you may qualify for a short-term payment plan where you make installment payments over a period of 180 days or fewer. If you owe $50,000 or less, you may qualify for a long-term payment plan. For most people, the best way to apply is online. Additional fees are charged if you apply by phone, mail, or in person.
For a short-term payment plan, there is no setup fee. For a long-term payment plan, there’s a setup fee of $31 if you apply online, or $107 if you apply over the phone, by mail, or in person—unless you qualify for a low-income waiver.
If you opt for automatic monthly withdrawals, known as a Direct Debit Installment Agreement, you qualify for the lower $31 setup fee. This option is required for payment plans with a balance over $25,000. If you choose to pay monthly without automated direct debit payments, you will have to pay the higher $107 setup fee.
Interest and penalties continue to accrue in either case until the balance is paid in full under all payment plans. That means you’ll owe less if you’re able to pay sooner rather than later.
If you get into a payment plan and want to revise it, you can do so for a $10 fee. The interest rate for late taxes changes over time based on market interest rates. Most individuals or businesses pay between 1.5 percent and 6 percent interest.
Businesses have very similar processes and fees, but the application process varies slightly depending on the person or entity you’re representing.
What if I’m owed a refund?
If your final tax return indicates that you’re owed a refund, the IRS will pay you when you file your late return, and you won’t owe anything. That’s another good reason to get your taxes done. You won’t know if you’re owed a tax refund until you (or your trusted accountant) finish your tax forms. And you won’t get any refund unless you file.
The IRS states that there’s “no penalty for failure to file if you are due a refund.” However, you can’t get any refund unless you file within three years of the due date in most cases. Even if you’re a year or two late, you will still get the full tax refund. This is important for all filers to know, because credits like the Child Care Tax Credit or Earned Income Tax Credit may not be available even if you otherwise qualify when you go too far past the due date.
Unfortunately for taxpayers, the IRS doesn’t have the same three-year window for taxes owed. Even if you file years late, you’ll still owe whatever taxes you’re liable for.
How Bench can help
Bench has worked with plenty of small business owners who need help working through the late filing process. First, Bench’s team of dedicated bookkeepers can help you get your accounting records in order and updated. If your books are neglected and your official method for keeping track of expenses is a shoebox labeled “keepers,” Bench can sift through the data and get you everything needed to file accurate tax returns.
Accuracy matters, because if you’re behind on your books it’s very likely you’ve missed valuable tax deductions that can lower your total tax bill.
We start by making sure your books are accurate and that you’re taking advantage of every deduction and credit, so you can ensure you’re not paying more than what you actually owe.
With Bench on your side, you have access to a team of professional bookkeepers who work hard every month to import bank statements, categorize transactions, and prepare financial statements. That makes tax season a piece of cake, as Bench gives you everything you need to quickly file on time in the future. Learn more about simplifying your small business taxes.
Delinquent taxes are often a hassle, but in most situations they’re no reason for excessive worry. To avoid the growing costs of unpaid tax and unfiled tax returns, it's best to finish those taxes as soon as possible. Having up-to-date and accurate bookkeeping greatly reduces the amount of time and effort you need to put in.
