Are there penalties for filing my taxes late?

You might end up paying a penalty if you file your taxes after the July 15 deadline. It depends on whether you’re getting a refund or you owe taxes.

If you’re getting a refund and missed the tax filing deadline

A content woman working on her taxes at her computer realizes she's getting a tax refund

There is no financial penalty for not filing your taxes by July 15 if you are receiving a refund. There are still repercussions for not filing by the deadline that you should consider.

For example, self-employed individuals will miss having their earnings reported to the Social Security Administration, meaning they wouldn't receive credits for that income towards their Social Security retirement fund. That could really hurt your finances when it comes time to retire. And, of course, if you don't file, you won't receive your refund.

Be aware that the IRS will only honor an overdue refund for three years, and the same applies to the credits you'd be able to claim on that delayed filing. The sooner you can file, the better off you'll be.

If you owe taxes and missed the tax filing deadline

A concerned man realizes he owes taxes as he works on his tax returns on a computer

There are financial penalties — including interest charges, which are applied to both what you owe as well as any incurred penalties, and other fees — associated with missing the tax filing deadline if you owe money.

Penalties and fees are charged as soon as you miss the filing deadline and continue to accrue. The faster you can address the issue, the less expensive it will be. You may also be subject to a failure-to-file penalty.

In some cases, the IRS may file a substitute return on your behalf. Since you know your finances best, you could lose deductions and end up owing more than you would if you did your own taxes. Having a substitute return filed would also mean that you would no longer be able to request an extension, which is an important tool for getting extra time to file your taxes.

Either way, you should still file your taxes and do so as soon as possible, to either get your refund and avoid complications associated with not filing or to minimize the costs of filing late.

How to extend your tax deadline

You can request an extension for filing your taxes, although that's something you should have done by July 15.

It's important to note that extensions are not a cure-all, and they don't impact the deadline for paying, as the name might suggest. Extensions only give you more time to file. If you owe money and aren't able to pay by the deadline, you would still have to deal with the financial ramifications of missing that deadline, such as penalties for paying late. Therefore you still would have had to pay an estimate of what you owe, if possible, to avoid financial penalties.

How to request an extension

A couple files an extension for their income taxes

There are two simple methods to request an extension:

  1. You can use Free File (regardless of your income bracket) to request an automatic tax filing extension. When doing so, be aware that you'll have to estimate your tax liability. And as mentioned earlier, the IRS advises those requesting an extension to pay their estimated tax obligations at the same time to avoid penalties. Keep in mind that the form you'd use would depend on your unique circumstances, for example, if you're requesting as an individual or a business.
  2. If you can pay all or a portion of your taxes for 2019 when you file your extension, you have the option to use Direct Pay or the Electronic Federal Tax Payments System.

How long is the tax extension?

In the past, the extension has provided an additional six months for taxpayers to file. And although the tax deadline has been moved back, the IRS has not said that this will impact tax extensions. Taxpayers should plan to file by October 15, 2020, since there's been no word on pushing the extension date beyond that.

What if I can’t afford to pay my taxes?

A woman calls the IRS to discuss additional time to pay her taxes

If you owe more than you can afford to pay, you can request at additional 60 to 90 days to pay in full by either:

  • Filling out the Online Payment Agreement application
  • Calling 800-829-1040

If you do not believe that is enough time to pay your taxes in full, you could also request an installment agreement which would provide at least 120 additional days if you qualify for the short- or long-term repayment plan. Or, depending on your situation, you may be eligible for an offer in compromise.

Those are all important steps to consider and take, as appropriate.

If you do not address your owed taxes, it's essential to know that the collection process could then be triggered. Depending on the situation, this could lead to a levy on your wages or bank account, or you could have a federal tax lien filed against you.

A lien would impact your various assets, including your business, if you have one, and could limit your ability to get credit. It may also continue even if you were to file for bankruptcy.

It's crucial to make it clear that you are actively trying to come up with a solution by filling out the appropriate forms and requesting assistance.

It can be scary when you aren't sure how you'll make ends meet, especially during tax season. By being proactive, you can save yourself some of that grief, and you can help set yourself up for better finances. That way, you can move on to the essential steps for building your financial health, like building an emergency fund and getting out of debt.

Devon Delfino is a writer for MoneyGeek.

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