A popular question people search for on Google is if you can file taxes late. With almost 93 million searches, this topic of late tax filing clearly affects many individuals for a variety of reasons. For one, people are concerned about potential penalties associated with late tax filing. People also have newfound concerns linked to this year’s pandemic-induced stimulus check and how (if possible) their tax filing might affect such matters. And in response to the coronavirus pandemic, Americans were given an extra three months to file their 2019 returns without incurring interest or penalties! While that sounds great, that adjustment came with additional information for taxpayers.
The IRS provides tax filing facts for the 2020 year in addition to potential payment penalties. To start, while April 15th was the initial annual deadline for most people to file their federal income tax return and pay any taxes they owe, the pandemic has created a shift in the economy which has inevitably resulted in tax filing adjustments based on such conditions. However, it is good to keep in mind (for future reference) that by law, the IRS may assess penalties to taxpayers for both failing to file a tax return and for failing to pay taxes they owe by the deadline. Here are eight important points provided by the IRS regarding penalties for paying or filing taxes late:
- A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.
- The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you are not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments, especially because the IRS will work with you.
- The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
- If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of half of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
- If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. Keep in mind, though, that you must pay any remaining balance by the extended due date.
- If both the 5 percent failure-to-file penalty and the half percent failure-to-pay penalties apply in any month, the maximum penalty that you will need to pay for both is 5 percent.
- If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
- You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.
The IRS announced on March 20, 2020 that due to the COVID-19 pandemic, they will extend the 2019 Tax Return filing and tax payment deadline to July 15, 2020 from the original date of April 15, 2020. This means that taxpayers had an additional 90 days to prepare and eFile their tax returns, including being able to pay their taxes owed without any late filing or payment penalties or interest. Nonetheless, it is helpful to be reminded that the penalties for not filing (including efiling) a tax return or a tax extension are higher than not paying taxes owed. Therefore, it is better to efile or file your tax return and pay as much taxes as you can afford than not filing at all. As such, it is good to consider additional details from the eFile website regarding IRS late filing and payment penalties. Keep in mind that these details include due dates to file tax returns in order to claim tax refunds in addition to what to do if you cannot pay the taxes you owe.
Tax Penalty Myths…Busted
Myth: “E-filing or filing a tax extension postpones my tax payments and avoids any IRS penalties.” That is false. Even if you get an extension, you still have to pay at least 90 percent (80 percent for eligible 2019 returns) of your balance due to avoid a late tax payment penalty.
Myth: “The penalty for not filing a tax return or an extension by Tax Day is small. Not paying is more expensive.” That is false. Not e-filing or filing a tax return or an extension is ten times more expensive than not paying your taxes on time (5 percent compared to 0.5 percent).
Myth: “If it has been three years since the tax return due date, you do not have to file a tax return for that year anymore.” That is false. After three years, you can no longer claim a tax refund for that year (but you may still file a tax return). However, if you owe taxes, you’ll need to file your return as soon as possible as well as owe back taxes and penalties.
You and Late Tax Filing
When filing for taxes, it is also important to consider personal information that must be provided, and this article does just that. Consider the following information that will be needed:
- Full name, current mailing address and an email address
- Date of birth and valid Social Security number
- Bank account number, type and routing number, if you have one
- Identity Protection Personal Identification Number (IP PIN) you received from the IRS earlier this year, if you have one.
- Taxpayers who previously have been issued an Identity Protection PIN but lost it, must use the Get an IP PIN tool to retrieve their numbers
- Driver’s license or state-issued ID, if you have one
Also, take note that for each qualifying child during 2019, the following information will be needed for them: name, Social Security number or Adoption Taxpayer Identification Number, and their relationship to you or your spouse.
Calculating The Numbers
You can use a free tax estimate calculator to help you figure out how much you may owe. And if you continually ignore your taxes, you may have more than fees to deal with.
We have likely heard the horror stories about people who were sought out by the IRS because they refused to pay their taxes. While paying one’s taxes might seem daunting, it is not just about the individual — the law is also involved. If taxes are difficult to understand, the best thing to do would be best to seek the help of accounting firms with professionals who specialize in taxes so you can get the best and most accurate results possible. After all, if you become negligent with your taxes and refuse to pay after a set amount of time, the IRS could get involved, and having the law involved in your money is not always pretty. Negligent taxpayers could result in the IRS doing the following:
- File a notice of a federal tax lien (a claim on your property)
- Seize your property
- Make you forfeit your refund
- File charges for tax evasion
- Revoke your passport
If you filed an extension by July 15, 2020 (2019 tax year deadline), it extends your filing deadline to October 15, 2020. An extension of time to file your return does not mean an extension of time to pay your taxes. If you expect to owe money, you are required to estimate the amount due and pay it with your Form 4868. As long as you do that, the extension will be granted automatically. It is also good to know that you can pay your tax bill with credit in a variety of ways.
TurboTax reminds us that credit card and bank loans are both payment options! You can apply for the following if you need assistance paying back an owed amount of taxes:
a bank loan ● home equity loan ● a cash advance on a credit card
Third party providers like Official Payments Corporation are also available to facilitate using a credit card to pay your tax bill. Just keep in mind that these companies charge a convenience fee (around 2.5 percent of the amount being paid) for their service and that fee is in addition to any interest and finance charges your credit card company may charge you.
Filing taxes does not have to be an end-all for you — even if the face of an economically distressed pandemic! With the right questions, you could be led to the right resources, and with the right resources, you could get the financial assistance and support that you need to uphold your financial well-being. Reach out to your local tax services firm to get the answers and solutions you need before it is too late!