If you tend to procrastinate at income tax time, beware of the costly consequences of missing the April 15 filing deadline — even if you owe no taxes.
“The best way to avoid costly consequences of missed filing deadline is to stay organized and establish a system for gathering your tax documents throughout the year, rather than struggling to find them at the last minute,” said Osama Osaghae, manager of Osaghae & Associates and a certified public accountant.
Osaghae said if you owe nothing, you should still file to claim refundable tax credits such as the earned income tax credit. The IRS or Illinois Department of Revenue also may require a return based on your circumstances, such as having two young children and qualifying for the child tax credit, which can result in a significant refund even for people who owe no federal income tax.
The IRS has separate penalties for failing to file a return and failing to pay taxes.
What’s the IRS penalty for filing a late income tax return?
Taxpayers who file late will see a penalty of 5% of the unpaid taxes — with a maximum of 25% — for each month the federal return is late.
If you file your federal return more than 60 days after the due date, or after the extended due date, the minimum penalty is $510 or 100% of the unpaid tax, whichever is lower, according to the IRS.
“Without sufficient evidence, it can be a painful process trying to convince the IRS to remove the ‘failure to file’ penalty,” Osaghae said. “So kick the procrastination habit and file on time.”
What’s the IRS penalty for paying income taxes late?
Separately, taxpayers could also see a failure to pay penalty, when you don’t pay taxes when they’re due. The fee is 0.5% of the unpaid tax for each month a filer doesn’t pay. The penalty won’t be more than 25% of your unpaid taxes, according to the IRS.
What’s the IRS penalty if you file and pay late?
If a taxpayer is subject to both a failure to file and a failure to pay penalty in the same month, the failure to file fee is reduced by the amount of the failure to pay penalty for that month. “For example, instead of a 5% failure to file penalty for the month, we would apply a 4.5% failure to file penalty and a 0.5% failure to pay penalty,” according to the IRS.
What are Illinois’ penalties for missing tax deadlines?
Filing a late state income tax return can also result in fees. Illinois’ late filing penalty is 2% of the unpaid tax for returns filed within 30 days after the due date, increasing to 10% if over 30 days late. Interest is also charged, which is calculated daily at the current interest rate, shown on your bill.
The penalties and interest start immediately after April 15 and continue until the balance is paid in full.
Osaghae, whose company has offices in Beverly and Schererville, Indiana, said filers could see other penalties from the IRS and the Illinois Department of Revenue.
A tax lien on your property could be imposed, meaning creditors will be alerted that the government has a right to your property, and it could limit your ability to get credit.
The IRS also could place a levy that allows the agency to garnish wages, take your property, take the taxes and fees owed out of your bank account or seize and sell your vehicle.
Osaghae said the IRS also could file a substitute tax return on your behalf, and it likely won’t include deductions or credits you may be entitled to.
Filers may qualify for penalty relief if they’ve filed and paid their taxes on time for the previous three years and met other requirements, including paying or arranging to pay any tax due. Filers can visit the IRS website for more details.
The agency also said taxpayers won’t have to pay the penalty if they show they failed to file on time because of reasonable cause and not because of willful neglect.
If you can’t pay in full, pay as much as you can by the due date to minimize further interest and penalties. Another option is paying over time under an installment agreement. Or seek an Offer in Compromise, under which taxpayers may qualify to settle their tax bill for less than the full amount due.
Request a tax filing extension
“If you don’t think you will get your taxes done before the deadline, request an extension by April 15,” said Carl Breedlove, lead tax research analyst at the Tax Institute at H&R Block, the company’s independent research division.
“The penalty for failing to file on time is up to 10 times higher than the penalty for failing to pay. Just note that an extension is only an extension of the time of file — not an extension of time to pay any tax owed,” Breedlove said.
Osaghae said taxpayers can explore free filing options such as MyTax Illinois or the IRS Direct File program.
There’s also help for individuals based on age or income through programs such as Volunteer Income Tax Assistance and Tax Counseling for the Elderly, which connect eligible filers with volunteers who can do basic tax return preparation. Sites offering the programs are often at community centers and libraries, and filers can search for one by visiting irs.gov/vita.
“It’s not too late to make the most of your tax return this year,” Breedlove said. “Gather all necessary records and schedule an appointment with a tax professional, or block out time on your calendar to take care of your taxes.”
