Tax season flew by quickly didn’t it (well, not really the last two years - but if you're usually a late filer, it always seems that way)? Let’s just say you completely forgot that Tax Day was May 17 this year and you are late with filing your tax returns. Yes... the tax deadline in 2021 is May 17.
Are you in a hopeless hole? What can you do?
If you caught onto your lateness before May 17, you could file an extension for your taxes with the IRS. All you need to do is to fill out the Form 4868. You get an extension just for asking and then you will have until October to get your taxes filed.
We’re all human after all. Life gets busy and we all forget sometimes.
If you missed the opportunity to file an extension however (you can only file an extension until midnight on Tax Day), here are some tips to help you out depending on your specific situation.
What To Do If You're Getting A Tax Refund
First, it is important to know that if you are getting a tax refund, there is no need to panic. You can still file your taxes even after the tax deadline for up to 3 years. Let’s look at a scenario.
You did not file your taxes by May 17, 2021 but you go into Turbotax, TaxAct or your tax preparer and it is determined you will get a refund. There is no penalty to pay and you will receive your refund. In fact, even if you don’t file your taxes this year at all, you can file it along with other tax returns until the year 2024 (up to three years).
If you don’t file the tax return by April 2024, however, you will forfeit your refund. Remember - 3 years!
What To Do If You Owe And You're Late Filing Taxes
If you file your return late and you owe the government taxes, unfortunately there will be a failure to file penalty to pay.
According to the IRS website, the late filing penalty fee is set at 5% of the amount you owe the government. A failure to pay the penalty adds an extra 5% for each month you don’t file your tax return up to a maximum of 25%.
Second, if you owe a late payment penalty, it is assessed at 0.5% on the taxes owed which is then compounded monthly to a maximum of 25%.
Apart from the failure to file penalty, there is also an interest assessed on your taxes each month you don’t pay taxes owed. Interest is assessed on a case-by-case basis.
Let’s look at an example if you're late filing taxes.
Let’s say you file your taxes late and owe the government $500 from your tax return.
Failure to File Penalty
$500 x 0.05 = $25 (for the first month)
Let’s say you are 3 months late filing, this increases to
500 x 0.05 x 3 = $75
In addition if you are late in paying your taxes :
500 x 0.005 x 3 = $7.50
We are already at $582.50 (quick and rough estimate as interest is also calculated on the taxes due). That's the original $500 you owe plus $82.50 in penalties.
As you can see the consequence of filing taxes late and especially if you owe the government gets expensive very quickly. You're paying 16.5% more just because you were late.
How To Pay Your Taxes If You Are Late
It is no different from paying your taxes during the regular tax season. The IRS currently does not accept cash payments. You can either pay online or send in a check or money order made out to the”United States Treasury”. If you are late because you don't think you can afford your taxes, make sure you read our article on what to do if you can't afford your taxes.
Our advice if you are late : Even if you find that you have missed the deadline, fix things as quickly as possible. The longer you wait, the more the penalties and interests accrue. We want to help you save money not give it away because of an oversight.
Now if you happen to be a US citizen or legal permanent resident who is working abroad, someone who is listed in the Armed Forces and currently in a combat zone or have experienced a disaster, there are special provisions for you. Detailed descriptions for these provisions can be found on the IRS.gov website.
While 2020 and 2021 have been crazy years, it's important to file your taxes on time. It's nothing to be scared of either! If you use the best tax software, you can probably knock out your simple tax return in 20-30 minutes!
It's also important to remember that if you're due a refund, filing late really doesn't matter. You just don't want to miss the three year mark and forfeit your money.
However, if you owe taxes, you still need to file on time! Those penalties can add up quickly if you're not careful.
As always, if you're not sure what to do, speak to a tax professional and get the help you need.
Have you ever experienced filing your tax returns late ? What was your experience ?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.