What Happens If Your Taxes Are Past Due?

Filing your tax return on time helps you avoid certain additional costs.

Filing your tax return on time helps you avoid certain additional costs.

Americans fail to file their income tax returns on time for a number of reasons, including procrastination, financial difficulties, personal troubles or a simple refusal to participate. No matter the reason for missing the filing deadline, you should be wary of the consequences that can accompany this decision. The biggest drawback is that it can cost you lots of money.

Interest and Financial Penalty

The Internal Revenue Service will charge you both interest and a penalty for a late tax return if you owe money. According to the IRS, an extended delay ultimately could cost you an additional 25 percent of your tax bill. The interest rate on past-due taxes is the federal short-term rate, plus 3 percent. The late-filing penalty charge is 5 percent of the tax bill for each month past the due date. A return that is more than 60 days late has a minimum penalty of $135, or 100 percent of the tax bill, whichever total is smaller. The IRS will not penalize you for a past-due tax return if you were set to receive a refund.

Other Financial Drawbacks

If you do not file a return on time, it can affect you financially beyond the penalties and interest you may incur. For instance, if you are due a tax refund, you cannot receive it until you have filed a return. Also, in the absence of a return from you, the IRS has the power to complete and file a return for you. If the IRS files your return, it might not include all of the exemptions and deductions that you would have been qualified to receive. If the IRS files a federal tax lien securing a claim on your property because of continued inability to pay your tax bill, your creditors will be notified and it could lower your credit rating.

Criminal Risk and Enforced Payment

If your taxes are long past due, you risk the IRS taking action to collect the funds that you owe or to seek criminal charges. The IRS has the authority to levy your wages, bank accounts or other assets, requiring the bank or other manager of the assets to hold up to the amount that you owe for 21 days while any questions of account ownership are resolved and then to release the funds to the IRS. The IRS also could seize property, such as a car or house, and sell them to raise the funds that you owe. According to the IRS, it will not recommend criminal prosecution for anyone who demonstrates an effort to file a return and pay their taxes, even if they are past due. However, the IRS might seek prosecution if you flagrantly avoid paying your taxes.

Extensions and Installments

If you are unable to pay all of the tax that you owe in a single payment, the IRS can work with you to set up an installment plan. This will allow you to pay your tax bill in monthly installments. A problem with the installment plan is that it comes with its own fees, adding to your bill. Fees include $52 for a direct debit agreement and $105 for a standard monthly check agreement or a payroll deduction agreement. That bill is lowered to $43 if you are below an income threshold updated annually. You also can file for a six-month extension if you are unable to file your return on time. However, you will owe interest on the taxes that you owed but did not pay by the filing deadline.


About the Author

Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. He graduated from the University of Virginia.

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