There's no need to panic. The Internal Revenue Service (IRS) is very clear on the fees and penalties that you can accrue if you file (or pay) late.
Remember, it's always, always better to file for an extension than it is to file late — and it's always better to file than it is to not file. Even if you're unable to pay your tax bill, filing with the IRS and working out a payment plan is the best option!
A failure-to-file penalty is just that — a fee for not filing your taxes by the deadline. The failure-to-file penalty is usually the biggest fee you'll face when filing late. You're expected to file a return regardless of your ability to pay your tax bill, so remember to file even if you can't pay what you owe.
The failure-to-file penalty is, as of 2019, 5 percent of the unpaid taxes for each month (or partial month) that the return is late. For those of you with an eye for compounding interest, the fees start accruing the day after the filing deadline.
What's the Maximum Fee?
On the bright side, there is a cap on the failure-to-file penalty — it cannot exceed 25% of your total unpaid taxes.
If you file late, you may also face a failure-to-pay penalty.
The failure-to-pay penalty is a bit more complicated to calculate. There's a penalty of 0.5% of your unpaid taxes (which starts accruing in the same manner as the failure-to-file penalty). If the IRS receives no payment, it may issue a "final notice of intent to levy or seize property". Once that happens, that 0.5% penalty doubles to 1%.
There's some good news! If you filed for an extension with the IRS (and paid at least 90% of the taxes you owe), the failure-to-pay penalty may be waived.
That said, if you accrue both the failure-to-file penalty and the failure-to-pay penalty in the same month, the most the IRS will ask for is 5 percent of the total unpaid tax amount.
What's the Maximum Fee?
Like the failure-to-file penalty, the penalty for late payment cannot exceed 25% of your total unpaid tax.
Filing Beyond 60 Days Late
If you're more than 60 days late in filing your taxes (either with the standard tax deadline or an extended due date), you're looking at an additional fee. This penalty will be determined by looking at the total unpaid tax — the minimum penalty applied will be either $210 or the entirety of the unpaid tax (whichever is smaller).
Is There Any Good News?
First off, remember that each penalty caps out at 25% of your total unpaid tax. If you hit that limit, the penalties stop accruing. Granted, that may be a pretty chunk of change, but you don't have to worry about the debt snowballing out of control.
Second, you can always request an extension to file a later return. The IRS is not some monolithic agency without wiggle room — there's plenty of opportunities to request extensions, work out payment plans, and even appeal to waive penalties for first-time mistakes.
Lastly, if you can show reasonable cause for not filing/paying your taxes by the deadline, the IRS will remove the penalties. The IRS will determine each "reasonable cause" case on an individual basis.
Filing Late Taxes in 2019
Filing taxes late is never a good idea, but sometimes life just gets in the way. If you're late filing your return in 2019, you can figure out exactly what penalties you'll face — and even get out of penalties completely if you have reasonable cause!
Our advice? Request an extension and talk with the IRS.
Communication and honesty beat filing late every single time.
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