Tax season is almost over, with the extended May 17 federal tax filing deadline right around the corner. And while the IRS has asked taxpayers to file early — in part due to the enormous backlog of returns that it is still sorting through — many Americans will inevitably fail to file their returns by Tax Day.
Individuals who owe federal taxes will incur interest and penalties if they don’t file and pay on time.
The penalty for not filing your taxes on time is 5% of your unpaid taxes for each month that the return is late, maxing out at 25%. For every month you fail to pay, the IRS will charge you 0.5%, up to 25%. For any month that you owe both penalties, the failure to file amount is reduced by the failure to pay amount.
Interest also builds up daily, equal to the federal short-term rate, plus 3%.
Taxpayers have the option to file for an extension, which will give them an extra five months to get their returns in by October 15. But they’ll rack up 0.5% in penalties each month unless they pay an estimated amount by May 17. The IRS offers a Free File tool for all taxpayers on its website, though only those earning $72,000 or less receive access to the more comprehensive version of the service.
Some Americans will receive automatic extensions, including those affected by the winter storms that hit Texas, Oklahoma and Louisiana in February 2021. Residents of those states have until June 15, 2021 to file their taxes.
If you expect to receive a tax refund, there is no punishment for not filing your federal return, but you are depriving yourself of the funds that the IRS has set aside for you.
“If you do not owe taxes, there are very few penalties that exist in the tax code for individual taxpayers,” explains Jackson Hewitt’s chief tax information officer Mark Steber.
However, Steber says that late filers should be aware of their home state’s tax code. Some states penalize late filers, so it is best to read up on your state tax authority’s rules before letting the deadline go by.