Penalty for Late Taxes

What Is the Penalty for Late Taxes?

Americans got a little bit of a break this year when it came to filing their federal and state taxes. Instead of needing to have them done by April 15 like usual, people got until April 18 to do them in 2023.

Why? Well, April 15 fell on a Saturday this year, which would have automatically given everyone until Monday, April 17 to do their taxes. But because April 17 was Emancipation Day in Washington, D.C., tax day got pushed back to April 18.

In spite of this delay, millions of Americans are still going to file late taxes. And when they do, it’s going to lead to them having to make higher tax payments than they would have had to otherwise.

How much higher? We’re going to talk about the penalties for paying taxes late today. We’re also going to provide you with some tax tips that should help you avoid filing taxes late in the future.

Continue reading to get all the tax help you need.

What Is “Late” When It Comes to Taxes?

In a few moments, we’re going to get into discussing which penalties you might face if you have late taxes. But before we do, it’s important for you to know what is considered “late” when it comes to Uncle Sam.

Filing your taxes late will involve you filing them anytime after April 18 in 2023 or anytime after April 15 during a normal year. Paying your taxes late, on the other hand, will involve you filing your taxes on or before April 18 but not paying your taxes until after that date.

The only exception when it comes to late taxes will involve you obtaining an extension from the IRS to file your taxes later than April 18. You can use Free File right on the IRS website to get an extension that will give you until May 15 to file and pay your taxes.

Getting this extension will give you more time to prepare your taxes and file them accordingly. But at the same time, it could also still subject you to certain penalties depending on your situation.

What Is the Penalty for Filing or Paying Taxes Late?

If you don’t file and pay your taxes by April 18, 2023, you’re likely going to be subjected to penalties issued directly by the IRS. You’ll get hit with a failure-to-file penalty and/or a failure-to-pay penalty depending on your specific situation.

If you file your taxes late, the penalty will be about 5% of your total tax bill for each month that you’re late up to 25%. Once you’re 60 days late with filing your taxes, you’ll also be hit with either a $435 tax penalty or a penalty worth 100% of your unpaid taxes depending on which number is lower.

If you pay your taxes later, there will also be a failure-to-pay penalty that will be put into place. It’ll represent 0.5% of your total tax bill, also up to 25%, though you may be able to bring it down to just 0.25% of your total tax bill if you agree to sign up for a repayment plan with the IRS.

The good news for those who file and/or pay their taxes late is that the maximum penalty for the failure-to-file and failure-to-pay penalties is 5% of your tax bill each month in total. But even still, that’s going to be a pretty hefty price for most people to pay.

Why Is the Penalty for Late Taxes So High?

The IRS has made the penalties for late taxes so high for one reason and one reason only. It’s because they want to encourage all Americans to file their taxes on time and pay them as soon as possible.

In an attempt to accomplish this goal, the IRS has routinely come down hard on those Americans who don’t take their tax obligations seriously enough. They give people every incentive to make it a point to file and pay their taxes on time year in and year out.

Are There Continued Penalties for Late Tax Payments?

There are some people who aren’t able to pay off their tax bills even before they’re hit with penalties. Once the penalties that we’ve mentioned take effect, it can make it even more challenging. It’s why those who have large tax payments that they can’t pay right away should try to contact the IRS as soon as they can to work out installment payments.

If you let late tax payments linger, your total tax balance is going to continue to grow. The IRS will charge an interest penalty on unpaid tax bills until they’ve been paid off completely. It’s equivalent to whatever the federal short-term rate is at the time with another 3% added on top.

How Can You Avoid Paying Penalties for Late Taxes?

Now that you know about some of the penalties you might face for late taxes, you should see why you should make every effort to file and pay taxes on time. You might be doing yourself a huge disservice if you don’t get around to paying your taxes quickly enough.

So, how can you avoid paying penalties for late taxes? For starters, you can begin to prepare your taxes as early on in the year as you can.

Studies have shown that about one-third of Americans file their taxes at the last minute. By getting an earlier start each year, you should be able to get your tax filing process under control.

You can also avoid paying penalties for late taxes by setting aside money that you can then use to pay your taxes throughout the year. It’ll guarantee that you don’t get stuck in a spot where you don’t have enough money to cover a tax bill.

Unfortunately, there might still be times when you have no choice but to file or pay late taxes. Things might come up that make it impossible for you to take care of your taxes.

But at the very least, you should try your hardest to file and pay your taxes on time. It’ll prevent you from paying the IRS a single penny more than you should have to more often than not.

Is There a Penalty for Filing Taxes Late When You Don’t Owe?

If you know that you’re going to be getting a refund from Uncle Sam rather than paying taxes, you might be wondering if you’ll also be subjected to penalties if you file your taxes late. You’ll be happy to hear that you willnot have to worry about paying any kind of penalties when this is the case.

That being said, you also won’t want to get into the habit of filing your taxes late in this instance. By filing your taxes late, you’ll be letting Uncle Sam hang onto your money without paying you any interest on it. It would be a much better idea for you to file your taxes and get your hands on the money you deserve ASAP.

What Should You Do If You Have Lingering Unpaid Taxes?

Certain people will have unpaid taxes that will hang over their heads for months and sometimes even years at a time. It can make it difficult for them to find their financial footing.

If you have lingering unpaid taxes that are weighing you down like an anchor, you should look into doing something about them. You might be able to qualify for a program that’ll help you get rid of these late taxes sooner rather than later.

This IRS debt forgiveness programis a great example of what we’re talking about. While this program isn’t always going to make all your tax debt disappear in an instant, it’ll provide you with some semblance of hope when it comes to paying back taxes.

You should see if you might be able to get approved to take part in a program like this. Even though the IRS is quick to penalize people for being late with their taxes, they also want to make sure they get the money they’re owed. So they aren’t above working out deals with Americans if it means getting them to make payments.

Filing and Paying Taxes On Time Each Year Is Important

Tax day is on the same day most years. You’ll need to file and pay your taxes by April 15 to avoid any of the penalties that we’ve discussed here.

You should begin working on your taxes as early on in the year as you can so that you don’t end up with late taxes. It’ll help you steer clear of paying penalties to the IRS and make doing your taxes so much less stressful overall.

Get more financial-related advice by reading through some of the other articles posted on our blog.