Filing Late – Everything You Need to Know!

Back in April when you may have filed an extension for your taxes, October seemed far away. Well, the due date is here, so I thought I’d address some questions I’m often asked this time of year.

What if I don’t file my taxes by the extended due date?

There is a Failure to File penalty if you don’t file your taxes by the due date. The penalty is based on the amount of tax you owe that was not paid on time.  The IRS calculates the Failure to File Penalty based on how late you file your tax return and the amount of unpaid tax as of the original payment due date (not the extension due date). Unpaid tax is the total tax required to be shown on your return minus amounts paid through withholding, estimated tax payments and allowed refundable credits.

Per the IRS,  here’s how the Failure to File Penalty is calculated:

·       The Failure to File Penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of your unpaid taxes.

·       If both a Failure to File and a Failure to Pay Penalty are applied in the same month, the Failure to File Penalty is reduced by the amount of the Failure to Pay Penalty for that month, for a combined penalty of 5% for each month or part of a month that your return was late.

·       If after 5 months you still haven’t paid, the Failure to File Penalty will max out, but the Failure to Pay Penalty continues until the tax is paid, up to its maximum of 25% of the unpaid tax as of the due date.

·       If your return was over 60 days late, the minimum Failure to File Penalty is $435 (for tax returns required to be filed in 2020, 2021 and 2022) or 100% of the tax required to be shown on the return, whichever is less.

·       If your return was over 60 days late, the minimum Failure to File Penalty is $450, for tax returns required to be filed in 2023, or 100% of the tax required to be shown on the return, whichever is less.

In addition, the IRs charges interest on the penalties.  The date from which interest is charged varies by the type of penalty. Interest increases the amount you owe until you pay your balance in full.

These penalties are in addition to the underpayment penalty, calculated on Form 2210, which charge penalties for not having enough withholding or estimated payments paid in during the year.  If you owe more than $1,000 and don’t qualify for a safe harbor rule, you may also owe an underpayment penalty.

What happens if I file a late return but I’m due a refund?

If you are getting a refund, there is no penalty for filing a return late. In fact, the IRS will pay you interest.  In general, the IRS will pay interest on the amount you overpay starting from the later of the:

·       Tax return filing due date

·       Late filed tax return received date

·       Date the IRS receives your return in a format they can process

·       Date the payment was made

Should I file my taxes if I can’t pay the balance due?

Yes.  By filing your taxes by the extended due date, you will not owe the Failure to File penalty, even if you owe money.  As you can see from the answer above, this can save you quite a bit of money.  If you can’t pay the balance due, the IRS offers several payment options. Download the IRS publication about this.

Is my return more likely to be audited if I’m on extension?

No. The IRS is more concerned about the information reported on your return than whether you file by April 15 or file an extension.

Can I file for another extension beyond October 16?

No. There are no further extensions.  If you miss the deadline, file your taxes as soon as you can.  If you are getting a refund, there is not any penalty, as the Failure to File penalty is based on the balance due.  If you owe money, the penalties will increase the longer you wait to file.

Does filing an extension or filing late increase the statute of limitations for the IRS to audit your tax return?

Per the IRS,  the IRS can usually assess tax, by law, within 3 years after your return was due, including extensions, or – if you filed late – within 3 years after we received your return, whichever is later. This time period is called the Assessment Statute Expiration Date (ASED).

Assessment Statute Expiration Date Examples from the IRS website:

·       You filed your 2021 individual tax return on the due date, April 18, 2022. Your ASED is April 18, 2025.

·       You filed your 2021 individual tax return late on October 31, 2022, after the October 17, 2022, extended due date. Your ASED is October 31, 2025.

Exceptions to the three-year assessment date:

By law, the IRS extends the time to assess tax if you…

·       Didn’t voluntarily file a required tax return. The IRS can assess tax at any time under the Substitute for Return program. If the IRS files a Substitute for Return, the 3-year limit for assessment doesn’t begin. However, if you later decide to file your tax return, it does start the 3-year time limit for assessment.

·       Agree to extend the time limit. The IRS may ask you to sign an agreement, or statutory waiver, to extend the time to assess tax. You can negotiate the proposed time extension or refuse to sign the waiver.

·       Reported 25% or less of your income on your tax return. The time the IRS can assess additional tax increases from 3 to 6 years from the date you filed your tax return.

·       Filed a false or fraudulent return with intent to avoid tax. The IRS can assess tax for an unlimited amount of time.

The 3-year time limit to assess tax is suspended if:

·       The IRS issues a Notice of Deficiency, also referred to as a 90-Day Letter. You have 90 days (150 days if you live outside the United States) to agree with the proposed assessment or to file a petition with the Tax Court before the IRS can assess the amount due. The suspension period starts on the day after the IRS mails the letter to you and ends 60 days after a final Tax Court decision.

If you don’t agree and don’t file a petition with the Tax Court during the 90- or 150-day period, the IRS will assess the amount shown in the Notice of Deficiency, and you must pay the amount due, plus any applicable penalties and interest.

·       You filed for bankruptcy. The assessment period is suspended when the IRS issues a Notice of Deficiency: 1) less than 90 days before you file a bankruptcy petition, 2) the same day you file a bankruptcy petition, or 3) after you file a bankruptcy petition, and before the bankruptcy automatic stay terminates. The assessment period is suspended further by the time allowed by law.

If you have procrastinated up to this point in filing your 2022 tax return, don’t put it off any longer and get the return filed as quickly as possible.

The information contained in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional for your specific situation.

Filed under: Dollars & Sense, Life, News
Profile photo of Penny Wasem, CPA, CFP, PFS, owner of Lifetime Financial Planning Solutions in Lancaster, Ohio.

By Penny Wasem, CPA, CFP, PFS

Penny L. Wasem is the owner of Lifetime Financial Planning Solutions, LLC. A summa cum laude graduate of Ohio University, Penny earned a Bachelor of Business Administration with focus in accounting and mathematics. She serves on the board of The Fairfield Medical Center Foundation, is a member of the Investment Committee of The Fairfield County Foundation and has been active on many non-profit boards in the community. Penny lives in Lancaster with her husband Eric Hubbard and is parent to Clark and Olivia Hubbard.