If tax day has come and gone, and you missed the tax deadline, your unfiled return could carry some unpleasant consequences. But if you take a proactive stance, you’ll be able to minimize the fees you owe for filing late and/or paying late. And even though your unfiled tax return may be out of sight and out of mind, the taxes you owe and late penalties are still there. Fortunately, the IRS offers help to taxpayers who find themselves in a bit of a bind. So go ahead and file that past-due return, even if you're unable to pay all the taxes you owe.
TL;DR (Too Long; Didn't Read)
If you miss a year filing your tax return, penalty payments and interest fees, some of which continue to accrue, are added to your past-due tax balance.
When Are Taxes Due?
Taxpayers are very familiar with the federal income tax due date of April 15 each year. But the filing deadline doesn’t always fall on this date. For example, the deadline in 2018 (for filing 2017 tax returns) was two days later – on April 17. For this year, April 15 was on a Sunday, and April 16 was a holiday (Washington D.C. Emancipation Day), so the tax filing deadline fell on the following business day.
What About Tax Extensions?
If you file an extension, you must still pay 90 percent of the taxes you owe by the filing deadline to avoid late-payment fees. The “extension” is simply an extension to file, not an extension to pay. In fact, the IRS notes a sobering statistic for failure to file. If you do not file your tax return (or an extension) by the filing deadline, your failure to file is "ten times more expensive" than your failure to pay.
Late Tax Return Penalty
The IRS has the final word on the amount of specific individual taxpayer fines if you miss a year filing your taxes, but this amount may include three discrete fees:
- Late-filing penalty – This penalty kicks in if you did not file your tax return by the filing deadline or by the extension deadline. You'll pay 5 percent of the amount of taxes you owe for each month (or portion of a month) that your return is late. The IRS puts a cap on this penalty at 25 percent. If you file your tax return later than 60 days past the due date, the minimum penalty you'll owe is $205 or 100 percent of the taxes you owe, whichever amount is less.
- Late-payment penalty – Regardless of whether you filed an extension, if you do not pay your taxes by the filing deadline, you'll owe a late-payment penalty. This fee is 0.5 percent of the taxes you owe and is calculated each month (or portion of a month) on the unpaid balance. If there is a monthly overlap, for which you owe both a late-filing penalty and a late-payment penalty, the IRS waives the late-payment penalty.
- Interest penalty – Beginning with the day after the tax filing deadline, interest begins accruing on your unpaid tax balance, until you've satisfied your tax bill in full. Interest is compounded daily, based on the federal short-term rate plus 3 percent. (This interest rate fluctuates, based on the current federal short-term rate.)
IRS May File for You
Well, this sounds like an easy solution if you missed a year filing your taxes. It may seem like a no-brainer to skip the responsibility of filing (and maybe even avoid the expense of paying a tax preparer to do this work) by simply letting the IRS file for you. But that's not exactly how this works. The IRS may file a "substitute return" if you fail to file, which not only assesses the estimated taxes you owe but also assesses fees for your failure to file. On top of this, the IRS likely will not offset your tax liability by subtracting any deductions and tax credits you're entitled to receive.
If the IRS files a substitute return for you, you'll receive a "Notice of Deficiency," which notifies you of this tax assessment. This notice is a 90-day letter, which means that you have 90 days during which you can either file your own tax return or petition the Tax Court if you want to challenge the IRS assessment. If you do not respond to the 90-day letter, the IRS proceeds with its assessment, which includes sending you a tax bill that sets a chain of events in motion. If you do not pay this bill, the IRS begins its collection process, which may include levying your wages or your bank account. And in a worst-case scenario, the IRS could pursue criminal prosecution.
What if You Can't Pay?
Life hits hard sometimes with unforeseen circumstances that leave taxpayers in financial flood waters. If you're unable to pay your tax bill, the IRS offers help through numerous payment options.
- Extension of time to pay – If you're in more of a short-term financial crunch than a long-term hardship, you can request an extension up to 120 days to pay your tax bill. If, however, you're already in the collection process and you've received a "Final Notice of Intent to Levy" from the IRS, the maximum extension you can request is 60 days. To request an extension, call the IRS at 800-829-1040, or if you've already received an IRS tax bill, call the number listed on the notice. You can also visit IRS.gov and search for "online payment agreement application" to submit your request. Another option is to download Form 9465 (Installment Agreement Request) from IRS.gov and mail your completed application to the address listed on the form's instructions.
- Streamlined payment plans – The IRS may allow you to make installment payments if you owe $50,000 or less in taxes, and if you can pay your bill in full within 72 months. If you owe $25,000 or less, the IRS will not impose a federal tax lien on you, but if you owe between $25,001 and $50,000, you'll have to make your installment payments by automatic bank debit to avoid a tax lien. To initiate this request, call the IRS or visit IRS.gov and search for "online payment agreement application."
- Nonstreamlined payment plans – The IRS works with taxpayers who owe more than $50,000 (and who cannot pay their tax bill within 72 months) by setting up a monthly payment plan based on a taxpayer's ability to pay. If you qualify for a nonstreamlined agreement, the IRS will file a tax lien against you unless you owe less than $10,000. Call the IRS or contact a tax professional to request this payment plan.
- Currently not collectible (CNC) status – If you're unable to pay the IRS anything right now, you can request CNC status, which is a temporary arrangement. When you are able to begin paying back your tax bill, the IRS sets limits on your housing and utilities expenses under its collection financial standards. Call the IRS or contact a tax professional to see if you qualify under this payment plan.
- Offers in compromise (OIC) – In extreme and rare financial hardship cases, the IRS may agree to settle your tax bill for less than the amount you owe. Apply for the OIC payment plan by visiting IRS.gov and download Form 656 (Offer in Compromise Booklet). If you meet the low-income criteria (these guidelines are contained in the booklet), the IRS waives the application fee and a down payment.
TL;DR (Too Long; Didn't Read)
If you need help to make the best decision about an alternative tax payment option, call on a tax professional who may also be able to advocate for you and facilitate the payment arrangement between you and the IRS.
What if You Don't Owe?
If you're among the roughly 75 percent of taxpayers who receive a tax refund, which means you do not owe any additional taxes, you will not incur a penalty for filing past the deadline. But you won't receive your refund if you don't file your return, so that's typically enough of an incentive to go ahead and file. Another incentive is that you only have three years to claim your refund from the due date of your tax return. And even if you don't owe any taxes, you may want to file a return if you're eligible for certain refundable tax credits, such as the Earned Income Tax Credit (EITC).
Missing Forms Failure to File
You may have failed to file your tax return simply because you did not receive a necessary form before the filing deadline, such as your W-2 (Wage and Tax Statement) or 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.). But before the domino-toppling chain of events picks up momentum and you’re staring in the face of late penalties and interest charges, you can still estimate your earnings and file your return on time. Download Form 4852 from IRS.gov, which is a substitute form for your W-2 or 1099-R, and estimate your income on this form. After you complete Form 4852, attach it to your tax return. If you receive your W-2 or 1099-R after you've filed your return and your figures weren't quite right, you can amend the return by filing Form 1040-X (Amended U.S. Individual Income Tax Return).
The IRS asks for your due diligence in rounding up any missing forms by contacting your employer or payer of your 1099-R income after Jan. 31, which is the issuing deadline for these forms. If you've still not received the necessary form by the end of February, call the IRS at 800-829-1040 and a representative will intervene for you by contacting your employer or payer.
New Form 1040 Heads-Up
Starting with the 2019 tax year (for returns you'll file in 2020), you'll have fewer tax forms from which to choose. The IRS is rolling out its consolidate 1040, which will combine the current forms 1040, 1040-A and 1040-EZ into one streamlined form. So even if you've missed filing previous years' tax returns, beginning in 2020 you'll use the new 1040, regardless if the return you failed to file was a 1040-A or 1040-EZ.
Free Tax Return Preparation Help
If you missed a year filing your taxes because you couldn’t figure out how to do this on your own and you could not afford professional tax help, the IRS offers two programs that are free of charge to eligible taxpayers. The Volunteer Income Tax Assistance (VITA) program gives free tax help for taxpayers who typically make $54,000 or less. Another option is the Tax Counseling for the Elderly (TCE) program, which name implies it’s only for senior citizens. Although its IRS-certified volunteers specialize in offering free tax help for taxpayers who are 60 and older, the TCE program is also available to help all taxpayers. To find the VITA or TCE office that’s nearest to you, call 800-906-9887 or visit IRS.gov and search for “free tax return preparation.”
- IRS.gov: 2018 Tax Filing Season Begins Jan. 29, Tax Returns Due April 17; Help Available for Taxpayers
- efile.com: Did You File and/or Pay Taxes Late?
- Intuit TurboTax: What's the IRS Penalty if I Miss the April Filing Deadline?
- IRS: Filing Past Due Tax Returns
- H&R Block: The IRS Offers Alternatives When You Can't Pay Your Tax Bill
- IRS: US Tax Center - Owe the IRS? There are IRS Payment Options
- IRS: Form 9465
- IRS: Form 656
- Intuit TurboTax: Filing Your Taxes Late
- IRS: Form 4852
- IRS: Form 1040-X
- IRS: Free Tax Return Preparation for Qualifying Taxpayers