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 the unpaid tax for each month or part of a month your return is late, up to a maximum of 25% of the tax owed. Even being one day late triggers the full 5% penalty for that month. If your return is more than 60 days late, the minimum penalty is $510 or 100% of the tax owed, whichever is less
- Failure-to-pay penalty: If you do not pay your taxes by the due date, there is a separate penalty of 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, up to 25% total. This penalty continues to accrue even after the failure-to-file penalty reaches its maximum
- 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, resulting in a combined penalty of 5% per month (4.5% late filing + 0.5% late payment), capped at 25% for filing and 25% for payment. The total maximum combined penalty can reach 47.5% of the unpaid tax
- Interest: The IRS also charges interest on unpaid taxes and penalties starting from the due date of the return until the balance is paid in full. The interest rate is variable and compounded daily (currently around 7-8% annually)
If you are due a refund, there is no penalty for filing late, but your refund will be delayed. You must file within three years of the original deadline to claim your refund; otherwise, you forfeit it
. Filing an extension and paying any owed tax by the original deadline can help avoid failure-to-file penalties, but you still must file the return by the extended deadline to avoid penalties
. In summary, filing late when you owe taxes results in significant financial penalties and interest, which increase the longer you delay filing and payment. Filing as soon as possible and paying what you can reduces these costs
