When an individual reaches the tax deadline and realizes that they’re not going to be able to file or pay on time, panic sets in. Fortunately, if the right steps are taken early, the problem can be dealt with before real tax debt creeps in. Most taxpayers who find themselves in trouble with the IRS cite the penalties and interest as being the primary cause of their tax problem. Without realizing it, after enough time the added sum becomes too much for an individual to pay off.
So it’s important to do the right thing now, before your tax problem gets out of hand. Failing to file your tax return will cause failure to file penalties and interest. Failure to pay your taxes will yield failure to pay penalties and interest. The larger of the two penalties is the failure to file. A 5% penalty is applied every month or partial month that a taxpayer does not pay. Taxpayers who fail to file will also have additional penalties applied after 60 days, either $135 or 100% of the unpaid tax, whichever is smaller. Taxpayers who are owed a refund are in a different situation, however. If you are owed a refund, you must file your tax return within 3 years of the tax due date in order to receive that refund. Failure to file within those three years will mean that your tax refund will go to the U.S. Treasury.
Failure to pay penalties are different that failure to file penalties in that they are much smaller. Taxpayers who cannot pay their taxes are strongly encouraged to file their taxes as soon as possible if they missed the tax deadline, to lessen the overall penalties and interest. The failure to pay penalty is one half of one percent per month of the unpaid taxes, plus interest. The failure to pay penalty continues for months until it eventually reaches 25% of your unpaid taxes. More than just owing taxes, the IRS is the worst creditor, able to take collection actions against you without the same legal hoops as other creditors.
If you did not file or did not pay your income taxes this year, you should start by filing your income tax return immediately. The IRS e-file system is still active and free for all taxpayers. Without filing, you cannot receive an IRS refund. Taxpayers who owe taxes must file to stop the penalties and interest that are accruing for failing to file. To lessen the amount of penalties and interest for failing to pay, taxpayers who pay some of their taxes now will benefit in the long run.