Filing taxes

Can’t File Your Taxes? Understanding the Failure to File Penalty

written by David J. Allen
reviewed by Claudia Grant
September 25, 2023

Can’t File Your Taxes? Understanding the Failure to File Penalty

If you can’t file your taxes, you need to understand the failure to file penalty from the IRS. Learn all about it by clicking here.

The IRS estimates that about 5% of Americans miss the tax filing deadline and file for an extension. Of course, this only gives them a brief reprieve from taking care of their tax obligation. 

When taxpayers file for an extension, they get a reprieve from the tax obligation filing until October 15. 

So, what happens if they miss the deadline after the October 15 extension? Is there a failure to file penalty? What consequences does the Internal Revenue Service dole out?

Read on to learn more about what happens if you don’t file your taxes when you should.

Taxpayer Obligations

The IRS establishes a yearly deadline requiring tax-paying Americans to get their tax bill in order by the deadline. Generally, the tax filing deadline is April 15. 

In 2023, the tax deadline was April 18. There were some exceptions for Americans living abroad. This year, residents in three states automatically qualified for a month extension because they lived in a disaster zone. 

At least 50% of all Americans file their taxes well before the April deadline, hoping to score a tax refund. 

If you can’t file your taxes by this date, the IRS allows you to file for a penalty-free extension until October 15.

Owing No Money

There’s one scenario where it isn’t bad news for you if you’re a procrastinator. If you have no tax liability, meaning you owe zero dollars for taxes, there’s no penalty for not filing on time.

If you expect to get a tax return and don’t owe money, the IRS won’t penalize you if you don’t file on time. The IRS will hold your refund up and keep your money until you get around to filing. 

They will still expect you to file a return at some point to have access to any return you’re eligible to get. 

Understanding Failure to File Vs Failure to Pay

When it’s tax time, it’s essential to understand the difference between failure to file your taxes and failure to pay your taxes. 

Failure to file means you’re not filing taxes or providing them with any tax information. Interestingly, the fees for not filing are often more steep than just not paying. 

The IRS expects all taxpayers to file a tax return and penalizes them when they don’t. 

Failure to pay differs from failure to file, even though some assume they’re the same. Failure to pay means you have filed your return but haven’t paid the associated taxes if you owe money. There are also IRS penalties for failure to pay. 

Failure to File Penalty

The IRS has a system for how to issue penalties if you fail to file your taxes within the expected timeframe. 

Failure to file penalties is based on two criteria. First, the IRS will consider how late you file your taxes from when they were expected to be filed. Second, they consider the amount of tax dollars you owe and base the penalties on when you should have filed, not the extension date. 

The IRS will issue a penalty of 5% of your total tax bill for each month, or a partial month, that you’re late in filing. The penalty can exceed 25% of your total tax obligation. 

If your tax filing is over 60 days late, the minimum failure to pay penalty will be $450 for taxes for 2023. I

If a taxpayer is issued both failure to file and failure to pay penalties in the same month, then the failure to file penalty is reduced by the amount of the failure to pay penalty. It’s important to note that the IRS charges interest on the taxes owed and penalties that are issued.  

Failure to Pay Penalty

There are also payment penalties if taxpayers file their taxes but don’t pay what’s due. The failure to pay penalty is 5% of what’s due each month or a partial month; the taxes liability remains unpaid.

Once the tax penalties reach 25% of the total due, they won’t continue to add penalties. 

If you were able to file your tax return on time with the IRS and have established a payment plan with them for the unpaid taxes, they will reduce the tax penalty by 0.25% per month (or partial month) during your approved payment plan.

For both a failure to file and a failure to pay situation, the IRS notifies the taxpayer in writing about penalties and how to resolve them. 

Penalty Abatement

Some situations might allow you to get at least your first penalty from the IRS abated. 

You might qualify for the penalty abatement if you’ve had no penalties for the previous three years. The same might be true if all previous years of returns are filed. 

You might qualify for an abatement if you’ve not had late tax filings before and have set up a payment plan with the IRS to get yourself current. 

90% Rule

Many taxpayers who are self-employed pay estimate taxes quarterly. You may not receive a failure to pay penalty if you’ve already paid at least 90% of the expected tax liability. 

Since the IRS doesn’t penalize you for paying the wrong amount regarding estimated taxes, you won’t be penalized if you’ve already paid the 90% of what’s expected. 

It should be noted that this rule doesn’t apply when it comes to employer-withheld taxes.   

Tax Help

Most people want to understand what will happen when they can’t file taxes or don’t. What’s the worst-case scenario?

If you fail to file your taxes, you could pay up to a 25% penalty based on the taxes you currently owe. Failing to file your taxes for up to 60 days could double your tax liability. 

If you haven’t filed on time, you may want to work with a tax professional to communicate with the IRS and get on track. They can negotiate with the IRS on your behalf and develop a workable solution for you. 

Failure to Pay Penalty

Paying your taxes is a big deal and one the IRS expects you to handle. Understanding how the failure to pay penalty can impact what you owe the IRS. It may help motivate you to get your tax filing done and submitted. 

If you’re struggling with your tax situation, help is available. Contact us to learn more about our tax relief services. 

David J. Allen

David J. Allen, an experienced wordsmith in the realm of taxation, transforms intricate financial jargon into reader-friendly insights. With a serendipitous start as an after-school assistant at his neighbor's tax office, David's trajectory evolved into an illustrious career spanning over 25 years as an Enrolled Agent—the paramount IRS certification. Guiding individuals with expertise and grace, he has meticulously saved them substantial sums through a thorough analysis of every benefit. A passion for empowering people to navigate the tax landscape fuels David. Through his prose, he not only enlightens but also inspires, making him a beacon of financial acumen and a true advocate for fiscal well-being.
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