This is a question we hear a lot!
When filing a late tax return (past the April 15th deadline), there’s no penalty if you’re receiving a refund. However, if you owe tax, you will have to pay interest and penalties on the amount you owe. This applies even if you file an extension! It is important to note an extension does not waive you from penalties and interest. The extension only applies to the paperwork filing, not paying any tax due.
The IRS determines the amount of the penalty and interest on a case-by-case basis. As a result, we can’t advise the exact amount you’ll be charged, however the information below (sourced from irs.gov) gives you a general idea.
- No Penalty – when you pay/file by April 15th OR file an extension and submit your return by October 15th and paid the tax owed by April 15th, you will not receive a penalty.
- Interest – begins to accrue on any unpaid tax beginning on the due date of the return, until the amount is fully paid off.
- Failure-to-File Penalty – if you owe taxes and didn’t file your return by April 15th, there’s a penalty for not filing on time.
- The penalty is usually 5% of the tax owed for each month your return is late, up to a maximum of 25%.
- If your return is more than 60 days late, there’s also a minimum penalty for late filing.
- The penalty for late filing is $210 OR 100% of the tax owed (whichever is less).
- Failure-to-Pay Penalty – If you file a return but don’t pay all tax owed on time, you’ll most likely pay a late payment penalty.
- The amount is .5% for each month, or part of a month, up to a maximum of 25%, of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.
- The .5% rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property.
- If you file your return by its due date and request an installment agreement, the one-half of one percent rate decreases to one-quarter of one percent for any month in which an installment agreement is in effect.
- Be aware that the IRS applies payments to the tax first, then any penalty, then to interest. Any penalty amount that appears on your bill is generally the total amount of the penalty up to the date of the notice, not the penalty amount charged each month.
Your best option is to file your return and pay your tax owed by April 15th to avoid interest and penalty charges. For additional info, visit www.irs.gov/taxtopics/tc65.
If you have any questions, reach out to Innovative Tax & Accounting Group, Inc.