Still Haven’t Filed? What To Do If You Missed the Tax Extension Deadlineyour tax return | November 14, 2016 | By Susannah McQuitty
It’s mid-November, you’re preparing your house for the Thanksgiving chaos (because of course it’s your turn to host this year), and you wake up in a cold sweat. You forgot all about your 2015 tax return.
Maybe the time just got away from you; maybe you moved to a new city and haven’t had time to dig your tax documents out of those moving boxes stacked ceiling-high in the second bedroom; maybe your dog ate your W-2. No matter. One way or another, you missed your deadline, and you know you’ve got to get that return filed before it’s time to do the next one in January.
Here’s what to do.
No more waiting – File NOW
It may seem a bit obvious, but here’s the thing: Not everyone who files late will get penalized. If you’re due for a refund, there’s no penalty if you file that return late. If you owe tax, on the other hand, it’s a different story. You’ll owe interest and penalties on the taxes you pay late.
Failure to File versus Failure to Pay
There are two types of penalties that late filers need to think about: failure-to-file and failure-to-pay. The failure-to-file penalty is usually much more than the failure-to-pay penalty, since the rate of the penalty is 5 percent of the unpaid taxes for each month (or part of a month) that a tax return is late. That’s capped at 25 percent of your unpaid taxes. Wait 60 days or more after the due date to file, and the penalty is either $135 or 100% of the unpaid tax, whichever is smaller.
By contrast, the failure-to-pay penalty is generally 0.5 percent (yes, that’s half a percent) per month on your unpaid taxes. Again, it’s time-driven, so it starts accruing the day after taxes are due. And it can build up to as much as 25 percent of your unpaid taxes.
If you haven’t filed and you didn’t pay, the combined failure-to-file and failure-to-pay penalties are capped at a total of 5% per month. That may not sound like much, but in five short months a tardy taxpayer has swelled their tax bill another 25 percent.
Getting it done
Now that you understand how the penalty is broken down, it’s time to pay up. The IRS suggests setting up a payment plan using its Online Payment Agreement tool, using your credit card, or getting a loan. You may also qualify for an offer in compromise, which is a way to settle your tax debt for less than the full amount.
If you haven’t e-filed your return yet and owe tax, the best advice is to file now and pay what you can, then use one of the options above to take care of the rest. Once that’s done, you can take a deep breath – at least one, before the holidays set in again with their tinsel-covered chaos. Hey, we take what we can get, right?