Uh oh. It is now after April 15, and you did not file your taxes. What do you do?
If you are expecting a refund, do not sweat it because you do not get penalized for not filing in this case. You will not get your refund until you do file, but otherwise, the IRS is not going to come after you for your paperwork.
However, if you owe Uncle Sam, you are in a little trouble right now, and the question is how to keep the trouble from growing bigger? Here is what to do if you missed the tax filing deadline.
There are three things you need to do right away:
E-filing is the fastest way to get your extension filed and your tax return once it is complete.
If your income was $58,000 or less, you can use the free version of a brand-name income tax software to prepare your return. If you earned over that amount and feel comfortable preparing your own return, you can use the IRS Free File Forms.
Pay as much as possible toward your estimated tax bill because for every day that goes by more interest piles up. The more you owe, the higher the interest charge will be. Once you have paid what you can, contact the IRS to request one of the following:
You can apply for a payment extension or an installment agreement online. There is a fee for applying for the installment agreement.
If you are at the point of asking for an Offer in Compromise, you should consider contacting a tax attorney for assistance in filing for it.
It can be complicated, and a tax lawyer can help you make sure you have performed all the steps, filled out all the paperwork at the right time, and help you get your best offer.
The best thing to do, of course, is remembering to file and pay on time. If you are going to be late and miss the deadline to file for an extension, you need to work on filing your return because the penalty for Failure to File is much higher than the penalty for Failure to Pay.
Remember, though, that when you fail to pay you not only incur a penalty, interest accrues as well, so your tax debt continues to grow.
Here is a comparison of the penalties:
If you fail to file and pay, the failure to file penalty is reduced by the failure to pay penalty:
Do not underpay. Unless you have a payment extension or installment agreement in place, do not underpay your taxes. Penalties for underpayment are assessed at differing levels depending on whether the IRS believes criminal intent was involved.
If no criminal intent is found, you will get fined a certain amount, and you must pay off your tax debt as soon as possible. If the IRS believes you deliberately underpaid with criminal intent you can be charged with:
The penalties for these charges range from a high fine to jail time.
If you know you cannot pay in full, file for a payment extension and pay as much as possible, even if it means dipping into savings. Filing lets the IRS know you are aware of your situation and shows that you are attempting to resolve it.
Filing for an extension on filing your return does not apply an extension to payment. You are expected to pay on time or suffer the penalties and interest.
After you file for your extension, contact the IRS to negotiate a payment plan. You have options, as we mentioned above.
If you know you can pay the balance within 120 days you can request a payment extension with the IRS Online Payment Agreement Application. Your penalties and interest will be lower than with an installment agreement. You are qualified for a payment extension if you owe $100,000 or less in combined taxes, fees and interest. There is no setup fee for a short-term payment extension.
The IRS charges a setup fee if you qualify for an installment agreement and your penalties and interest will be higher than with a payment installment. You are qualified if you owe $50,000 or less in combined taxes, penalties and interest. The set-up fee depends on how you will be making your payments.
An Offer in Compromise is an attempt to reach an agreement for you to pay the IRS a smaller amount than you owe. However, Offers in Compromise are only granted in extreme cases, and you would do well to have a tax attorney represent you when attempting this agreement.
The consequences of not filing your state or federal income tax return extension or payment are more interest accrued and additional penalties.
For the IRS, interest on overdue tax compounds daily from the due date until the date of payment and is assessed at the federal short-term rate plus 3 percent.
You can be hit with multiple penalties as well, separate from interest. The IRS has two penalties:
If you owe either of these penalties, pay the failure-to-file penalty first as it is the more substantial or the two. Failure to file is assessed at 5 percent of the taxes not paid by the due date for each month or partial month the return is late.
Fortunately, it is capped at 25 percent of your taxes, but can still be a significant financial blow.
You get a small break if you owe both a failure-to-pay penalty and a failure-to-file as the failure-to-file penalty will be reduced by the amount of the failure-to-pay penalty.
Failure-to-pay is assessed at 0.5 percent of your unpaid taxes for each month, or partial month the tax is unpaid after the due date. This penalty also cannot exceed 25 percent of your taxes.
In the case of either penalty, if you can show the IRS reasonable cause for not filing promptly, you will not have to pay the penalty.
The California Franchise Tax Board, charged with administering income taxes for the state, can also assess penalties for these failures. For underpayment of taxes, the penalty is five percent of the unpaid tax plus 0.5 percent per month or partial month on the remaining amount due until it is paid off. The minimum penalty is $135.00 or 100 percent of the unpaid taxes, whichever is less.
The first thing to do is to file and pay your taxes as soon as possible, no matter how late.
If you are due a refund, there will be no penalty but if you owe the IRS and the State of California, penalties are assessed on all amounts due, so even if you are unable to pay, you should file to reduce the failure-to-file penalty.
Send a payment immediately to reduce the amount of interest that will accrue on the unpaid taxes. You will not be allowed to file for another extension so the tax return must be completed and filed quickly. Make sure you follow up with the IRS and the state tax agency to ensure the funds sent are matched to the correct tax documents.
Check your bank accounts to withdrawals and keep all canceled checks made out for taxes.
Even if you cannot pay, you must file a tax return to the IRS and the California Franchise Tax Board by the deadline, letting the agency know you are aware you owe taxes and you wish to resolve the situation. Then you can arrange to set up a payment plan for your tax bill with both agencies.
Tax agencies continue to assess interest and penalties until the full amount is paid; it is in your best interest to pay as much as possible up front and quickly. The IRS can file a Notice of Federal Tax Lien if you do not pay. A lien damages your credit rating, and you could face jail time.
The IRS also assesses penalties for underpayment that run from small fines to criminal charges:
More substantial fines or jail time may result.
If you can file and pay in full, do it now. If you cannot pay in full, file anyway and pay as much as you can. Then set up a payment plan for the rest as soon as possible. Filing or paying late simply results in penalties added to your tax bill and for every day you do not pay more interest is incurred.
Paying off your tax bill as soon as possible cannot be stressed strongly enough. Not only will you avoid additional interest and potential penalties such as liens, but you can also avoid damage to your credit rating and ability to obtain a loan.
Penalties for failing to pay or file may be waived if you can show the IRS and the FTB reasonable cause, examples of which include:
Needless to say, you will be required to present documentation to support your claim.
An experienced tax attorney can help you determine the correct documentation to file and guide you to installment payment programs for both the IRS and the FTB, but you must act soon.
"Sam is a wonderful, results-oriented and extremely knowledgeable and talented attorney, who really has 'heart' in working on behalf of his clients, and explains options in a straightforward, respectful manner. He has assisted us with great outcomes which have added to our quality of life. I would not hesitate to recommend Sam for his services as he is an ethical, personable and expert attorney in his field. You will likely not be disappointed with Sam's work ethic, approach and his efforts."
-Aileen Dwight, Licensed Clinical Social Worker & Psychotherapist
Last updated: March 25, 2023
Our best stuff: secrets, tax saving tools, and tax defense strategies from the braintrust at Brotman Law.
These ten big ideas will change the way you think about your taxes and your business.
Find the articles and videos you need to make the right tax decisions in the learning center.
It is not just about what we do, but who we are, why we do it, and how that benefits you.
Meet with us to outline your strategy. No further obligation, 100% money-back guarantee.
The CA State Board of Equalization (BOE) is a powerful agency with a complex and important role in...
27 min read
In the midst of tax filing season, it's common to start worrying and thinking about taxes on a...
28 min read
Even though the pull of living in the Golden State is strong, it boasts some of the highest tax...
27 min read
We'll answer your most pressing tax law questions in 15 minutes. Please choose a time below that works best for you.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this website is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter contained in this website.