The 2017 tax filing season has officially come to an end. While most taxpayers generally file a timely return, some are left with questions about what happens once they’ve missed the deadline, which, for this year, was April 18.
Penalties and payment
There are no penalties for taxpayers who file a late return when a refund is due, but that is not the case for taxpayers who owe taxes but have not filed a return.
There are two types of penalties-plus-interest that can apply when filing late: failure-to-file and failure-to-pay.
The failure-to-file penalty is charged for tax returns filed after the due date or the extended due date. This penalty is generally higher than the failure-to-pay penalty. Not filing a return by the due date or extended due date will add an additional 5 percent to the unpaid tax bill monthly, up to 25 percent of the balance. File quickly to avoid additional penalties. Filing more than 60 days from the due date, the minimum failure-to-file penalty will be the smaller of $205 or 100 percent of the tax liability. By showing reasonable cause for filing late, a taxpayer can avoid the penalty.
The failure-to-pay penalty is charged for failing to pay your tax bill by the due date. The penalty is half of one percent (0.5 percent) of the unpaid tax up to 25 percent. The late payment penalty may not apply to taxpayers who filed Form 4868 — Application for Automatic Extension of Time to File and have paid 90 percent or more of their annual income tax.
When both penalties apply, the IRS offers taxpayers a small break. The combined penalty will be 5 percent (4.5 percent failure-to-file and 0.5 percent failure-to-pay), which can still add up to 47.5 percent (22.5 percent failure-to-file and 25 percent failure-to-pay) of the unpaid tax due fairly quickly.
The interest accrues daily at the short-term federal rate plus 3 percent. The short-term federal rate is determined quarterly.
Can’t pay it all?
If you can’t pay the unpaid tax in its entirety, pay what you can as quickly as possible and visit IRS.gov/payments to explore payment options. Have your tax return and financial information on hand, including income and expenses.
Taxpayers are encouraged to file even if they cannot pay, because it will help keep penalties and interest charges to a minimum. The IRS wants to work with taxpayers to help them resolve their tax debt before taking any actions to collect the debt. Based on a taxpayer’s ability to pay, the IRS might provide alternate payment options, such as an installment agreement, which would allow smaller payments over time if the bill cannot be paid in full. Taxpayers can apply online at IRS.gov/OPA, by phone at (800) 829-1040 or file Form 9465 — Installment Agreement Request by mail and Form 2159 — Payroll Deduction Agreement to pay by payroll deduction. IRS electronic payment options provide the quickest way to pay.
Know your rights and beware of scams
Be aware of potential tax scams involving IRS impersonators. The IRS wants to help taxpayers avoid confusion, know their rights and tax responsibilities, and know how to identify phone scams wherein callers impersonate the IRS or the designated debt collection agency. Remember that the IRS will send at least three notices by mail before taking further actions to collect. If the IRS transfers an account to a designated collection agency, you will receive a notice of transfer from the IRS and the collection agency will mail a second notice to notify you of the transfer and their upcoming attempt to contact you by phone. Always be sure to set up any online payments directly through the IRS website and make any checks payable to the United States Treasury. Be assured that the IRS and designated private debt collection agencies will never:
nCall to demand immediate payment using a specific payment method, such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will initially contact any taxpayer who has an unpaid tax bill via mail.
nThreaten to immediately bring in local police or other law enforcement to have the taxpayer arrested for not paying.
nDemand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
nAsk for credit or debit card numbers over the phone.
Know your civil rights. If a taxpayer believes that their tax liability is incorrect they may appeal. IRS.gov/advocate/taxpayer-rights is an excellent resource to understanding your rights and responsibilities as a taxpayer. The IRS online tool also offers taxpayers a guide to examinations, collections and appeals. IRS Publication 594 — The IRS Collection Process is also a good source of information regarding the collection processes including ways to pay a tax bill and how to appeal an IRS decision.
For more information, visit IRS.gov.
