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What Happens If You File Your Taxes Late?

Tax Day, or the deadline for filing your 2020 federal income tax return, falls on May 17 this year. But what happens if you miss this deadline and file your tax return late?

As you navigate taxes, you can get familiar with tax-filing essentials in Personal Capital’s free Guide to Filing Your Taxes in 2021.

Can You File for an Extension?

If you think there’s a chance that you might miss the tax-filing deadline, you should file for a deadline extension. This will automatically give you until October 15, 2021, to file your taxes. However, you must file an extension before May 17 — if you wait until after this date it will be too late to receive an extension.

To file for an extension, complete IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

Note that while filing for an extension will give you more time to file your federal tax return, it does not give you more time to pay your taxes if payments are due. If you think you might owe taxes this year instead of receiving a refund, you should estimate how much you’ll owe and send this amount in with Form 4868.

What Happens If You File Late?

If you miss the tax-filing deadline and are due a tax refund this year, then there will be no penalty associated with filing late — even if you don’t file for an extension. Your only “penalty” would be a delay in receiving your refund. You have up to three years from the tax-filing deadline to file your return and receive your refund.

But it’s a different story if you owe taxes and miss the tax-filing deadline. In this scenario, you will be assessed penalties for failing to file your return on time and failing to pay your taxes on time. The failure to file penalty is 5% of the unpaid tax per month, plus interest, with a maximum penalty of 25% of the unpaid tax. 

The late payment penalty is 0.5% per month (or a fraction thereof) of the unpaid tax until the tax is paid in full, plus interest, also with a maximum penalty of 25%.  The IRS can collect back taxes for ten years from the date the taxes were assessed.

What If You Can’t Pay?

There are three main options if you can’t pay the amount of tax you owe.

  1. Pay it using a credit card. The IRS accepts credit cards as payment for taxes due. Keep in mind, however, that if you can’t pay your credit card balance in full when the bill comes due, you could end up paying high interest rates that significantly increase the amount of tax that you end up paying.
  2. Pay it in installments. You’ll attach IRS Form 9465 to your tax return to request an installment agreement and monthly payment plan for the payment of your taxes. If you owe more than $10,000, the IRS may want to review your personal finances (such as your assets, liabilities and cash flow) before agreeing to a payment plan. 

Tip: Get a handle on your money with Personal Capital’s free financial dashboard. You get a quick overview of your net worth, cash flow, investment allocation, and more. You can also plan for long-term goals like funding a child’s education or retiring.

Get Clarity on Your Personal Finances

The IRS will charge $31 to set up the payment plan if payments are direct debited, or $149 for non-direct debit payments. The interest rate charged on late payments is currently 3% (this changes quarterly) and there’s also a late payment penalty of 0.5% per month. 

  1. Ask for an “offer in compromise.” In certain situations, the IRS will accept less than the full amount of tax due — this is referred to as an offer in compromise. These include:
  • if there’s doubt that the amount due is accurate
  • if there’s doubt that the tax could ever be paid in full
  • if the IRS determines that payment would result in economic hardship or be unfair

Request the Form 656: Offer in Compromise Package to learn more about offers in compromise.

Be sure to consult with a tax professional if you have more questions about what happens if you file your taxes late.

Review Your Guide to Filing Taxes in 2021

Personal Capital compensates Brian E. Leyde  (“Author”) for providing the content contained in this blog post. The information and content provided herein is general in nature and is for informational purposes only. Individuals should contact their own professional tax advisors or other professionals to help answer questions about specific situations or needs prior to taking action based on this information. Tax laws and authorities are subject to change, either prospectively or retroactively, and any subsequent change could have a material impact on your situation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Brian E. Leyde, CPA, MPAcc, is a tax specialist with Seattle Tax Group. He has worked with individuals and businesses in a variety of industries. A true economist at heart, Brian’s experience spans various CPA firms. He has owned his own CPA firm and has also worked for one of the Big Four accounting firms (KPMG) and a regional firm in the Pacific Northwest (Clark Nuber). He also understands the ups and downs of entrepreneurship, having bought, operated, and sold businesses. He is driven to help his clients reach their business and life goals.
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