Taxes: What to Do if You Haven't Filed

Limit penalties and interest and even claim the Child Tax Credit

If you missed the April 18 deadline to file your taxes and didn't request an extension (or receive one automatically), the Internal Revenue Service (IRS) offers simple advice—file now. The sooner you file, the less you will pay in penalties and interest.

There is no penalty for filing late if you are due a refund. In fact, you have 3 years to file to get your money back.

If you didn't file because you didn't owe taxes, you could be leaving money on the table in the form of refundable tax credits such as the Earned Income Credit, Child and Dependent Care Credit, or Child Tax Credit. Those who don't usually file and didn't qualify for a third-round Economic Impact Payment, or got less than the full amount, may be eligible to claim the 2021 Recovery Rebate Credit when they file their 2021 tax return.

Key Takeaways

  • If you missed the April 18 tax filing deadline, the IRS advises you to file ASAP to avoid penalties.
  • Those who don't file because they don't owe any taxes risk losing out on refundable credits.
  • Failure to File and Failure to Pay may result in penalties including interest.
  • First Time Penalty Abatement may apply if you have filed on time for the past 3 years.
  • Members of the military in a combat zone receive an automatic extension with no penalties.
  • To reduce or eliminate penalties faster, pay taxes electronically instead of by mail.

Reduce Penalties and Interest

The main reason for filing as soon as possible, even if you didn't file on time, is to reduce costly penalties and interest. The only way to stop the accrual of penalties and interest is to file and pay the taxes you owe.

Filing as soon as possible and paying as much of the amount you owe as possible is critical. For late-filed tax returns, two types of penalty apply—a Failure to File penalty and a Failure to Pay penalty. In addition, the IRS charges interest on penalties. Unsurprisingly, penalties and interest can add up quickly.

If you fail to file a tax return and should have, the IRS may send you a CP59 notice informing you that the agency has "no record that you filed your prior personal tax return or returns."

Failure to File

The Failure to File penalty is 5% of the tax owed for each month (or part of a month) the tax return is late, up to five months. Even if you can't afford to pay the taxes you owe, you should still file as soon as possible to reduce the Failure to File penalty.

If both a Failure to Pay and a Failure to File Penalty are applied in the same month, the Failure to File Penalty will be reduced by the amount of the Failure to Pay Penalty for that month. For example, instead of a 5% Failure to File Penalty for the month, the IRS would apply a 4.5% Failure to File Penalty and a 0.5% Failure to Pay Penalty.

If your return is filed more than 60 days after the due date, the minimum Failure to File penalty is either $435 or 100% of the unpaid tax, whichever is less.

Failure to Pay

The Failure to Pay penalty is 0.5% of the unpaid tax owed for each month or part of a month until the tax is fully paid or until 25% is reached, at which point the Failure to Pay penalty maxes out. If you don't pay taxes owed within 10 days of receiving an Intent to Levy notice from the IRS, the Failure to Pay penalty is 1% per month (or partial month).

If the IRS finds that you owe tax that you did not report on your return, even if the return was filed on time, it will send you a notice or letter with the amount due and a due date to pay. The due date will be 21 days after the notice. Failure to pay will also result in a 0.5% penalty on the unpaid amount.

Interest on Penalties

The IRS also charges interest on the penalties it levies. The date from which interest is charged varies with the type of penalty. This interest increases the amount you owe until you pay your balance in full. For example, the current interest on underpayment of taxes owed is the Federal short-term rate plus 3 percentage points.

Penalty Relief

If you have filed on time, paid your taxes for the past three years, and met other requirements, you may qualify for penalty relief under First Time Penalty Abatement. You can request removal or reduction of some penalties if you acted in good faith and show reasonable cause for why you weren't able to pay your taxes. Interest can only be removed if the underlying penalty is removed.

You can dispute a penalty if you disagree with the penalty or the amount of the penalty. To dispute a penalty, call the IRS at the number listed at the top right corner of the letter you receive or write to the agency at the address on the notice. When you call or write, you should be prepared to:

  • Indicate the notice or letter sent to you by the IRS
  • Describe the specific penalty you want to dispute
  • Explain why you believe the IRS should remove that penalty

Finally, to avoid a Failure to File penalty, you can request an Extension of Time to File, which will give you until October 17, 2022, to file your return. However, if you don't pay the amount you owe at that time, a Failure to Pay penalty and interest on that penalty will apply until you do pay.

An extension of time to file is not an extension of time to pay.

Automatic Extension

You may qualify for an automatic extension to file and pay without penalties or interest if you fall into one of the categories below.

  • A member of the military who served or is currently serving in a combat zone. You may qualify for an additional extension of at least 180 days to file and pay taxes.
  • Member of a support unit in a combat zone or a contingency operation in support of the Armed Forces. You may also qualify for a filing and payment extension of at least 180 days.
  • A taxpayer outside the United States. U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico, including military members on duty who don't qualify for the combat zone extension, may qualify for a 2-month filing and payment extension.
  • Some disaster victims. Those who qualify have more time to file and pay what they owe.

Pay Taxes Electronically

To quickly pay taxes owed and avoid penalties and interest, use your Online Account, IRS Direct Pay, debit or credit card, or digital wallet and visit the IRS website. You can also apply online for a payment plan (including an installment agreement). When you pay electronically, you receive immediate confirmation. With Direct Pay and the Electronic Federal Tax Payment System (EFTPS), you can receive email confirmation of your payment.

Article Sources
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