Taxes take a big bite out of your income, but that bite gets bigger with the addition of late filing penalties.
How much bigger? It depends on what you’re late on, and how late you are.
For example, there are penalties for late filing, not paying at all, and both can be combined.
Here are some facts.
Taxpayers with refunds can file late without penalties. In other words, only taxpayers with a tax due to the IRS face penalties.
- No matter what, the penalty for filing federal taxes late will include interest.
The IRS charges interest on how much you owe, and periodically adjusts the interest rate. If underpay your taxes by $1,000.00 and don’t settle up for six months, then at the current 5% annual interest rate, that’s 2.5% of $1000, or $25 in extra payments.
- The IRS also calculates a failure-to-pay penalty.
This adds another .5% per month, on top of that regular interest rate, to the amount you owe. For that same $1,000, the failure-to-pay penalty for filing Federal taxes late would add another .5% per month, or 3% total, for an additional $30.
- On top of all that, there’s an even stiffer penalty for filing Federal taxes late.
If you don’t send the IRS a check and don’t even send them your paperwork, they’ll also add a failure-to-file penalty, of 5% per month, up to 25%.
However, if you choose not to pay your taxes, the IRS can garnish your wages.
Fortunately, the penalty for filing Federal taxes isn’t ‘stacked’.
If you owe the failure-to-pay penalty and the failure-to-file penalty, you’ll only owe 5% per month, not 5.5% per month. But once you’ve reached that 25% maximum failure-to-file penalty, the failure-to-pay penalty can keep on accumulating. Your maximum penalty for filing Federal taxes late could reach 47.5% (25% failure-to-file, plus .5% failure-to-pay over 45 months), plus interest.
With such a steep penalty for filing Federal taxes late, it’s smart to look at the alternatives. As soon as you know you owe taxes, you can start figuring out how you’ll quickly resolve the issue and pay back the money the IRS is asking for. With a little work, you can quickly minimize your penalty for filing Federal taxes late, and get on the path to repayment.
For more information on penalties, click here.
That being said, don’t wait until the last minute.
Avoid a hefty tax bill on top of any outstanding tax debt you have and file now. Create an account now to get started!