What’s the Worst Thing That Happens If You’re Late With Your Tax Return (or Don’t File It at All)?
This is the time of year when increasingly sweaty Americans are rummaging through desk drawers and sofa cushions for receipts, wrestling with confusing math, and checking when their local post office closes. That’s right: it’s tax season, the least beautiful time of the year.
It has been more than a century since the United States began collecting income tax on an annual basis (previously there were short-term income taxes), and yet the entire population seems shocked to find that they will have to pay taxes again this year, just like they eat every year of their adult lives. Stories will begin to appear on the news of people literally filing their tax returns in the mail at two minutes before midnight, and a general sense of panic will sweep the country as people struggle to understand the concept of marginal tax rates , which is apparently right there with elementary particle physics in terms of complexity.
The deadline for filing federal taxes is April 18 this year. If you haven’t started the process of organizing your returns yet, you may be wondering if you can avoid being penalized for filing late or not filing at all. The answer depends a lot on your definition of “getting away with something” because both options have serious drawbacks.
Some Considerations Before Ignoring the Tax Deadline
Before we go any further, you should keep in mind that there is an easy and perfectly legal way to file your tax return late: apply for an extension. You have until Tax Day to file Form 4868 , which automatically gives you a 6-month extension, so your new due date will be October 15th. your taxes, by simply filling out this form, you will buy yourself time to clean up. By the way, this also applies to state taxes. Each state has its own rules, but in general you can go to your state tax office and file an extension form with them.
Please also note that if you are having trouble applying because you currently live outside the US or are in the military, you may be eligible for an automatic renewal. The IRS also offers an extension for people affected by natural disasters .
Also, please note that there is a difference between non-submission of documents and non-payment . In general, the IRS is pretty lenient on the latter as long as you do the former. Tax evasion penalties are much higher than tax filing penalties, and the IRS usually develops a payment plan or otherwise works with you to pay your tax bill if you are in financial difficulty. In other words, it’s always smarter to file your tax return and figure out the rest later.
What happens if you file your tax return late?
Of course, not all of us live the best lives, and things can get away from us. So what happens if you file your tax return just at the wrong time? It is important to file your tax return, no matter how late. This can at least avoid the penalties for non-filing your tax return and clear you of the suspicion that you are trying to evade taxes, since at least you recognize your tax debt.
The IRS is not unreasonable when it comes to failure to file or pay. If you provide a reasonable explanation for your lateness (in writing), there is a very good chance that it will be mitigated and the fines will be waived. You will receive a non-payment notice from the IRS that will include a phone number to call. Call and they will let you know what to do with the explanation letter.
Also, if you know you’re getting a refund, the IRS won’t usually penalize you for a late refund because it owes you money. But you still have to file a return within three years to get a refund. After that, you lose everything that the government owes you.
You need to know about interest, fines and arrests. Since your return is delayed, your payment is also delayed. The IRS will charge you interest on unpaid balances and impose some penalties on you. Interest starts accruing from the due date (April 18 this year) until you pay the balance. For those who are not corporations (who are legally considered individuals, but treated much better by the federal government), the interest rate is 3%.
There will also be a late fee that starts at 0.5% of your tax bill per month with a cap of 25% (on top of the tax you owe and the interest charged on it). If you agree on an installment plan, the penalty rate is halved to 0.25%. Eventually, the IRS will issue a notice that they intend to confiscate the property to pay off the account, and ten days after that, the penalty rate increases to 1%. If you applied for an extension and missed this deadline, the penalty increases to 5%.
After all, the IRS will also likely take your paycheck to pay off your tax bill, go straight to your employer, and snatch the money from your paycheck before it reaches you.
So there really isn’t any upside to filing late – even if your finances are in turmoil, it’s best to file and settle your payment later. But what if you decide to say no to taxes in general?
Here’s What Happens If You Pay No Taxes At All
Without your tax dollars, the federal government would cease to exist. As you can imagine, they are determined to get your money. Here’s what happens if you just don’t file your tax return:
- You may be subject to criminal liability. The federal government doesn’t often accuse people of tax evasion or file criminal charges, but “infrequently” is not the same as “never.” In 2015, for example, 1,330 people were accused of tax evasion . He has a six-year period to charge you; after that you are legally clean. But a plot twist! The IRS can tax you and impose permanent penalties on you, regardless of the decision on criminal charges.
- You will receive interest and penalties. The IRS will start fining you on tax day. The aforementioned penalty for non-submission starts the celebration (unless you provide a reasonable explanation for the non-refund), but there will also be penalties for non-payment. Similar to the non-filing penalty, non-payment starts at 0.5% of your tax bill and goes up to 25%, but keep in mind that this is in addition to the non-filing penalties. As noted above, the IRS can confiscate property, seize wages, and place a lien on your home in pursuit of your money. You will also lose your refunds if you do not apply within three years.
- Your credit may be affected. Tax liabilities do not show up on credit reports, so there is no direct impact on your credit score if you try to evade taxes. However, lenders usually look at public records in addition to checking your credit score, and if they see a lien from the federal government, they will run away rather than walk away from you and your loan application.
- They will file for you. If you think you’re being smart about not listing your taxes, the IRS has a surprise for you: they can, and often do, on your behalf using whatever information they have. W-2 forms, for example, are provided by the IRS, so if you’ve worked, they probably already know how much you’ve been earning (why they can’t just pay taxes for us is another matter entirely). After you dodge taxes – or think you dodged them – you may get a letter in the mail gleefully informing you that your taxes have been paid and you owe a certain amount, which will be much worse because the IRS won’t worry. with credits, deductions, or other tax credits to which you may have been entitled.
Failure to file or pay taxes is costly, but easily avoided by simply following the law and filing in good faith.