Late Filing of Tax Returns

If you’re late in sending in your tax returns, do not fret since the Internal Revenue Service (IRS) is highly lenient regarding the extension of the deadline. However, you need to take the necessary steps in time to avoid penalties.

• • April 15th is the tax deadline for filing and paying your taxes

  • If you cannot submit your taxes on time, file Form 4868 no later than April 15th

  • Filing this form allows you an extension to file your taxes by October 15th

  • Form 4868 DOES NOT extend the time to pay

  • This form requires you to estimate how much you owe in taxes for the current year.

  • The IRS allows estimation as 110% of the previous-year tax paid. (Multiply 1.1 x TOTAL TAX paid in the previous tax year) (Line 4 of Form 4868)

  • Gather your W-2 along with other tax documents received from 3rd parties and sum up all the federal taxes withheld (Line 5 of Form 4868)

  • Subtract Line 5 from Line 4, and this is how much you estimate you still owe the IRS for the current tax year

  • Send in your estimated tax due (Line 6 ) along with the completed form 4868

  • If you do not send in the estimated tax due, you will incur penalties and interest for paying late

In most cases, the taxpayer is not able to pay the taxes estimated by April 15th. Let us go in a little more detail about filing your taxes late and some options you have to pay.

Due Date

The due date for filing returns every year is April 15^th unless it falls on a holiday or weekend. In that case, the tax day is postponed to the next available weekday as the due date for filings your taxes. For example, if April 15^th is on a Sunday, the due date for filing your returns will be April 16^th which is the following Monday.

Even though everyone is well aware of the due date, millions fail to file their returns by April the 15^th. Procrastinating your tax preparation is one of the major reasons millions of taxpayers fail to file on time and before they know it, April 15^th comes and goes with no left time to prepare your taxes.

Extension of the due date

If you file for an extension by 15^th of April, the government gives you a period of six more months to file your returns so the new due date falls around 15^th October.

If you don’t file for extension of the due date by April 15^th, a penalty of 5 % of the tax owed is charged in the first month and mounts up to 10 %, 15 %, 20 % and 25 % in the next four months respectively. The maximum amount of penalty that can be charged is 25 % of the total amount of tax due in case of late filing of return whereas the minimum amount of penalty payable is $100 or 100% of the tax bill you owe, whichever is lesser if you are 60 days late or more.

For example, you have a tax bill of $5,000 and you’re one month late in filing your returns then the penalty you will owe to the IRS for the first month would be $250 (5,000*5%).

Similarly, if you’re more than 60 days late in filing your tax returns and have a tax bill of $5,000, the penalty due would be $750 (5,000*15%).

The IRS might give you a sigh of relief if you have sufficient proof and a reasonable explanation for the late filing of your tax return. Attach a written explanation for your failure to file along with your tax return to avoid the late filing penalty.

Late in filing but the IRS owes you a tax refund:

If you have a credit income tax balance i.e. tax refund, there is no penalty for filing your income taxes late even if you fail to file for the extension of due date before April 15^th. Not to get too excited though, since, you will only get your money refunded once you file your returns which must be within three years of the due date. Once you do file your taxes, your tax refund can take between 2-6 weeks to process.

Late payment of tax bill

An extension for filing of returns, unfortunately, doesn’t include an extension of the payment deadline as well. The expected amount of tax you owe for the current year must be paid by April 15^th irrespective of the date of filing of return along with form 4868.

In case you fail to pay your taxes before the 15^th of April, you will be charged a late payment penalty of 0.5 % per month of the amount of tax due for that month. The maximum late payment penalty charged is 25 %.

Not to forget, an applicable interest rate of 5% will be charged as well for paying your taxes late along with the payment penalty which is subject to changes in the future.

Just like late filing penalty, late payment penalty can also be wiped if you attach a reasonable explanation along with your return for your failure to clear your tax bill. An example of a “reasonable” explanation could be: being out of the country or having a bed-ridden illness.

You can pay your taxes through various methods

Credit payment: If you are low on cash and are unable to pay your taxes you can avail third party payment services. IRS affiliate payment companies like Official Payment Corporation charge a service fee for clearing your tax bill through your credit card (which earns you reward points). Other credit options for paying off your due taxes are obtaining personal unsecured loans and home equity loans. Keep in mind that the interest rate on credit card bills are relatively very high and can be overwhelming if not paid timely.

IRS Direct Pay: The IRS has made the payment process significantly easier and efficient for taxpayers. You can use this method to pay your income tax bill, estimated tax due and others. You will have to verify your identity by selecting a tax year and providing the filing status (Married Filing Jointly, Single, Married Filing Separately, Head of Household, Qualifying Widow), name, social security number, date of birth and address used for that tax year.

Once you verify that information, you enter your bank information and the payment will be pulled from the bank account. Not more than two payments can be made within 24 hours.

Installment agreement with IRS: If all else fails, you can set up an installment agreement with the IRS. This is the most suitable method in case you are low on cash and want to avoid high-interest bank loans and credit card loans. What you need to do, however, is to file your income tax returns even if you’re unable to pay your tax balance and attach the 9645 Form of Installment Agreement Request. You can also apply online on the IRS website where you have two payment plans:

• Short term installment plan: For less than $100,000 owed, this plan is proposed for installment payments to be completed within 120 days of the due date with penalties, minimal interest rates, and no set-up fee.
• Long term installment plan: For less than $50,000 owed, a long-term IRS payment plan lets you pay off your tax debt in more than 120 days and has higher interest charges and set-up fee. You can apply for a direct debit installment agreement (DDIA) or a non-direct debit installment agreement (non-DDIA).

Both plans include accrued penalties and interest expenses.

If the minimum monthly payment amount required by the IRS exceeds what you can afford to pay monthly, you will have to complete a form 433F-Collection Information System, which the IRS uses to evaluate your ability to pay back.

Every taxpayer’s situation is different; therefore, the IRS gives certain allowances for lower installment plans. Do not make the mistake of not filing your tax returns just because you’re unable to pay your taxes. Remember that the late payment/filing penalty fees along with interest will accumulate, which will only increase your tax debt burden. Just so you know, setting up an installment agreement might not cost you a dime, depending on your income level, so no need to hesitate before trying this convenient option.

If you believe your circumstance will qualify you for lower installment payments or if you do not qualify for any of the installment payment plans on the IRS website, one of our Certified Tax Resolution Specialist can help you evaluate your case and help you set up a properly structured Installment plan.