What Happens if I File My Taxes Late? IRS Penalties and Getting Your Refund

I have received a few comments from readers asking me if it is to late to file a return after the regular tax season deadline (April 15th this year for most people); and what happens if they forget to file for an extension.

I also get asked what happens if they owe taxes (liability) or if they find they are now eligible for a tax refund.

The important thing to remember is that you should take action in either scenario. This way you minimize IRS penalties or interest payments and ensure you the get free government money owed to you, a.k.a refund.

What are IRS filing penalties?

There are two main types of IRS tax filing and payment related penalties. As the names describe one is the Failure-to-File. The other is the Failure-to-Pay penalty

The IRS considers failing to file a bigger than not paying your full tax liability. That is why the Failure to File Penalty is initially much higher than the Failure to Pay Penalty.

This is why filing on time is important, and if you cannot afford the tax liability payment you can setup an IRS payment plan without penalty.

The IRS in particular focused on those tax payers earning more than $100,000 per year and who don’t file.

Forgot to file or request an extension and owe taxes

If you have a potential tax liability with the IRS and missed the April 18 tax filing or extension request deadline, you could face the following failure-to-file penalties:

  • 5% of your unpaid taxes for each month you are late, up to 5 months. This fee can go up to 25% of your unpaid taxes.
  • If you file more than 60 days late, your minimum failure-to-file penalty will be 100% of your unpaid taxes or $435 (increasing to $485 in 2023), whichever is less.

Late tax liability payments incur an additional 0.5% failure-to-pay penalty of unpaid taxes until the tax is fully paid or until 25% of the outstanding tax owed amount is reached

Fraudulent returns, as determined by the IRS after initial filing, have the most significant penalty which increases from 5% per month to 15% per/month, with the maximum penalty generally increasing from 25% to 75%.

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Below is a simple example of how these penalties would be applied

Mark files his return and makes his estimated tax payment 45 days late. He didn’t file an extension. His outstanding tax liability is $4,000. Based on this his failure-to-file penalty 1.5 x 5% x 4000 = $300. His failure-to-pay penalty is 0.5%*4000 = $20. The total penalty is $320.

So avoid the penalty or extra interest by making an estimated payment of what you think you will owe. You can also use tax software (for free) to get an estimate of your potential liability.

For more information see the Penalties page on IRS.gov.

IRS Penalty Refunds

Given ongoing processing delays, pandemic constraints, the IRS is providing a one-time relief payment for penalty fees they charged related to late filings of 2019 or 2020 federal returns.

The total value of these penalties is estimated at $1.2 billion, meaning millions of tax filers will be getting a IRS refund payment in 2022.

The average refund in failure-to-file penalties will be about $750, according to the IRS. To qualify for this relief, any eligible income tax return must be filed on or before September 30, 2022. You can efile for free in many cases.

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Can I Get Penalty Relief?

Yes. If you have a history of on time filing or extenuating/hardship circumstances you can request a one-time penalty relief with the IRS when filing your return. In many cases, you will get this as a one time exception.

The IRS also recently provided pandemic related penalty relief for those who filed their 2019 and 2020 tax returns late and were assessed a penalty. The average failure-to-file penalty rebate will be about $750, according to the IRS.

To qualify for this relief, any eligible income tax return must have been or be filed on or before September 30, 2022.

What If I Didn’t File But Maybe Due a Refund?

A number of people sometimes don’t file because they didn’t earn enough money or hadn’t filed in the past. But with all the stimulus checks and expanded tax credits now available, you don’t need any income to qualify for these.

In fact lower income earners can benefit the most; so filing to claim this free government money via your refund payment makes a lot of financial sense. For some people this can be over $10,000. And filing is free with most larger providers if your income is below $70,000!

The good news is that filing late if you have no tax obligations with the IRS (or other federal agencies) will also not result in any penalties.

You can e-file your return with the IRS until mid-November before they stop accepting returns as they update systems for the following tax season. You can start filing again in January for current and past year tax returns

In Conclusion

The IRS recently reported over $1.5 billion in unclaimed refunds and collected much more in penalties and interest. So what are you waiting for? File now for free to get what you deserve or to minimize what you have to pay Uncle Sam.

Finally, don’t forget the above is around late filing for your federal tax return. You also need to ensure you file your state tax return by the required due date.

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