If you file your taxes late and owe money, the IRS imposes several penalties and interest charges:
- Failure-to-file penalty: This is 5% of your unpaid taxes for each month or part of a month your return is late, up to a maximum of 25% of your unpaid tax. If your return is more than 60 days late, the minimum penalty is $510 or the amount of tax owed, whichever is smaller. This penalty stops accruing after five months
- Failure-to-pay penalty: If you don't pay your tax bill by the deadline, you face a penalty of 0.5% of the unpaid taxes for each month or part of a month, up to 25%. If you receive an IRS notice and still don't pay within 10 days, this rate increases to 1% per month
- Combined penalties: If both failure-to-file and failure-to-pay penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty amount, resulting in a combined 5% penalty per month (4.5% failure-to-file + 0.5% failure-to-pay)
- Interest: Interest accrues daily on unpaid taxes starting the day after the filing deadline until the balance is paid in full. The current interest rate is around 7-8% annually and is subject to change
If you are due a refund, there is no penalty for filing late, but your refund will be delayed. You have up to three years to claim your refund before it is forfeited
. You can avoid penalties by filing an extension and paying any owed taxes by the original deadline. Some taxpayers may qualify for penalty relief if they have a reasonable cause or it's their first time missing the deadline
. In summary, filing taxes late when you owe money results in escalating penalties and interest that can add significantly to your tax bill, so it is best to file and pay as soon as possible
