What Happens If You File Taxes Late? How to Avoid Penalties

If you get motivated by deadlines, here’s one to bookmark: April 18, 2023. That’s Tax Day 2023, and the date by which you must either file your income tax return for the 2022 tax year or request a tax extension. It is also the deadline for paying any taxes owed, as an extension to file isn’t an extension to pay.

But each year, some taxpayers choose “none of the above” and either don’t file or file late without requesting an extension. The Internal Revenue Service frowns on both, but penalties are most severe if you owe taxes. 

Failing to pay your tax bill when it is due could mean penalties up to 47.5% of your original tax bill, plus interest. In the most extreme cases, the IRS could collect its money without your permission by garnishing your wages, taking money from your bank account or seizing and selling your home or car.

Here’s what you need to know about the late penalty for filing your taxes, including tips for procrastinators to keep you on Uncle Sam’s good side.

When are taxes due? 

The deadline to file your 2022 tax return and pay any taxes owed is April 18, 2023. However, you can request a tax extension, which extends your filing deadline until Oct. 16, 2023. But even with an extension, if you owe or think you might owe, you must pay that amount in full by the April 18 deadline to avoid penalties and interest.

What is the penalty for filing taxes late? 

If you file your taxes late, the consequences depend on whether the Internal Revenue Service owes you or you owe them. If you owe, you could be subject to two penalties: failure to file and failure to pay.

Failure-to-file penalty

If you owe the government money and fail to file your 2022 tax return by the due date—which is April 18, 2023 if you didn’t request an extension or Oct. 16, 2023 if you did—the IRS assesses a failure-to-file penalty. This penalty is 5% of your unpaid taxes for each whole or partial month your return is late.

For example, if you originally owe $1,000, your failure to file penalty would be $50 a month. However, if your return is over 60 days late, a minimum penalty kicks in—which is the lesser of $450 or 100% of the tax owed for tax returns due in 2023.

Failure-to-pay penalty

If you file your tax return by the due date but don’t pay the taxes you owe, the IRS assesses a failure-to-pay penalty. This penalty is 0.5% of your unpaid taxes for each whole or partial month that the taxes remain outstanding and capped at 25% of taxes owed for the year. So, for that same $1,000 tax bill, your failure-to-pay penalty would be $5 a month and max out at $250.

If you fail to file and to pay

The IRS can hit you with a double penalty if you fail to file your return and don’t pay what you owe by the due date. But here, the IRS cuts you a bit of a break. In months where both penalties apply, your failure-to-file penalty is reduced by your failure-to-pay penalty.

For instance, if your tax bill is $1,000 and both penalties apply, your failure-to-file penalty is 4.5%, and your failure-to-pay penalty is 0.5%, for a total monthly penalty of $50. While your failure-to-file penalty will max out after five months, the failure to pay penalty continues to accrue until it hits 25% of your tax bill. 

Don’t forget interest 

That’s right—interest on unpaid taxes starts to accrue from their original due date until paid in full, and today’s rate is a steep 7%. (The IRS updates its rate quarterly based on prevailing interest rates.) 

“This is an expensive time to be late on taxes owed,” says Paul T. Joseph, a certified public accountant. He adds that between penalties and interest, taxpayers could see their bills skyrocket in a short time.

Don’t lose your refund

It is also possible to lose your refund for a given tax year if you don’t file within three years of the original deadline. You won’t face a penalty if you’re due a refund, but you should still file by the April deadline. “You never want to give the government an interest-free loan,” says Emily Irwin, an advice and planning executive with Wells Fargo. 

While Irwin says some people don’t file for emotional reasons, the IRS says most people who miss out on refunds do so because they think they didn’t earn enough to make filing a return necessary. However, you may be due a refund even if you’re not required to file a return if you are:

• A student or part-time worker who had taxes withheld from your paycheck
• A senior or retiree who had taxes withheld from your retirement fund or Social Security income
• A taxpayer eligible for refundable tax credits such as the earned-income tax credit or child tax credit, which can create a refund even if you don’t owe taxes

If the tax deadline is looming, try these tips

Whether you owe or aren’t quite sure yet, there are steps to take to ease the stress and keep Uncle Sam on your side.

Check for overlooked tax breaks 

If you’re staring down a tax bill that’s more than you expected, Irwin from Wells Fargo says to look for potential levers you can pull to decrease what you owe. 

If you have some extra cash, Irwin suggests making a 2022 contribution to a traditional IRA—which you can do up to the April 18 filing deadline. Single, head-of-household and joint filers who aren’t covered by an employer’s retirement plan can deduct their full traditional IRA contributions up to the annual contribution limit. However, if you’re married filing jointly or separately, and one or both of you are covered by an employer’s retirement plan, consult the IRS’s guide to how much, if any, of your traditional IRA is tax-deductible.

If you don’t have extra cash, all isn’t lost. “Deductions are another wonderful way to minimize your tax burden,” says Irwin. You can take the standard deduction, a fixed amount that any taxpayer can take to reduce their taxes. But Irwin says it can’t hurt to run the numbers to ensure that itemizing deductions doesn’t make more sense. 

For instance, suppose you’re self-employed and typically file a Schedule C, Profit or Loss from Business (Sole Proprietorship), or had unreimbursed medical expenses totaling more than 7.5% of your adjusted gross income in 2022. In that case, Irwin says you could be missing out on valuable deductions by assuming the standard deduction offers the greatest benefit. Tax software can help you identify whether you have enough deductions to make itemizing the better choice.

Check your credits

Another tip is to make sure you’re claiming any tax credits for which you’re eligible, including the child tax credit, EITC and others related to higher education. Explore potential tax credits that use your AGI to qualify in Buy Side from WSJ’s complete guide to adjusted gross income. We’ve also gone in-depth on the EITC in our step-by-step guide to Form 1040—a tax credit the IRS estimates that one in five eligible taxpayers fail to claim.

What to do if you still owe

If you don’t have the cash to pay your bill in full, don’t panic, says Akeiva Ellis, a certified public accountant. “It is going to be OK, but don’t ignore the problem,” she says. “The IRS never forgets.” 

You can still file your taxes or request an extension by April. “Extensions are available, free and easy,” Ellis says.

Whether filing your return or an extension by the April 18 deadline, Ellis says to pay as much of your tax bill as possible when you file. Then, immediately contact the IRS to request a payment plan via phone, mail or online at the IRS website. “A payment plan can keep your account in good standing and prevent damages, like the IRS garnishing your wages.”