Haven’t done your taxes yet? You’re not the only one, but what happens if you miss a tax deadline? Do you go to jail? Even though the IRS can be one of the scarier branches of the government, it doesn’t work quite like that and there is some flexibility on how and when you file.
Can’t make the deadline because of an extreme circumstance? You can file an extension to file your taxes later on, however you need to pay at least 90% of your tax bill before April 16th, otherwise you will be hit with a late payment penalty. In other words, you still need to calculate how much you owe in taxes even when you file a tax extension.
Filing a tax extension doesn’t necessarily mean you get a free pass to not pay them until you feel like it, like I said before, you need to pay the majority of it off before April 16th or you’ll start accruing interest charges. What you owe will accrue interest, starting at .5% of your bill the first day that you’re late. Also, there will be a 3% compounding interest fee on the unpaid balance.
So let’s say you don’t file you taxes and you don’t file an extension, you could be facing a penalty of 5% to 25% of your tax bill. If you wait more than 60 days you’ll be charged $135 or 100% of the taxes you owe, whichever is less. This only applies when you owe money, if you don’t you don’t get a penalty at all but this should not serve as encouragement to miss deadlines because if you wait too long you may not qualify for a refund at all, more on that later.
People who do file their taxes but didn’t pay for them by the deadline also get penalized but not quite as harshly as those who have missed these deadlines. The percentage added on is .25% for outstanding balances as long as you have a payment agreement in place which can cost anywhere between $52-$105 to apply for.
What happens when you don’t file or pay taxes? This is the LAST scenario that you want to be in but if this ends up happening to you the IRS will take control of the situation. They'll calculate what you owe and you’ll have all of the fees mentioned above for not filing and not paying on time. If the government owes you taxes and you have waited more than three years, you won’t get your money back so time is always of the essence when dealing with the IRS. In very extreme situations you may qualify for a Offer in Compromise which is basically a reduced tax bill, but you have to prove that you are going through extreme financial hardship to qualify.
When you can’t come to an agreement with the IRS they can actually levy a federal tax lien on your finances which can mess up your credit in more ways than one. You don’t want to be in this situation EVER because this means they could take the taxes that you owe from your Bank Account, Retirement, Social Security and even your wages. Being proactive about filing taxes even if you’re filing late is better than getting to this point with the IRS. As an accountant and someone who deals with helping with people with their taxes, I can tell you that you need to be proactive about your taxes rather than just letting it go for a few years and have to deal with garnished wages.
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