Tax Day Warning: What happens if you don’t pay your taxes?
Today, April 17th, 2018, is the deadline for filing 2017 taxes. When the default filing day, April 15th, falls on the weekend, the official filing deadline gets moved to the following non-holiday (April 16th is Emancipation Day, a legal holiday in the District of Columbia). Not filing taxes, or not paying taxes in the case of taxes owed, carry different penalties depending on the circumstances. In some cases, tax payers have the option to file for an extension to avoid these fees.
Every tax situation is different and before making any tax-related decisions it is best to consult a financial advisor or tax professional. Here’s what happens if a tax payer misses the tax deadline to either file or pay their taxes:
Penalty for Not Filing
Tax payers who do not file are charged a “failure-to-file” fee up to 5% of unpaid taxes for each month the tax return is late, up to a threshold of 25% of the unpaid tax debt. For example, a tax payer who owes $1,000 can end up owing an additional $250 in as little as five months after not filing.
Penalty for Not Paying
When tax payers have filed taxes, owe taxes, but have not paid the debt, a smaller penalty will be charged. The “failure-to-pay” fee of 0.5% of the unpaid tax debt up to 25% of the total balance. Interest will also be applied to the debt, based on the federal short-term rate plus 3%. According to the IRS, interest is compounded daily and accumulates. If the tax payer can provide a reasonable cause for not paying the debt on time, they may be able to avoid these fees.
Tax payers who are going to miss the filing deadline have the option to file for an extension. Tax payers who owe taxes, but are unable to pay in full before the deadline can also apply for a payment plan with the IRS. Being proactive now can eliminate costly interest and fees later.
If you have any questions about your taxes or the filing deadline, consult a financial advisor or tax professional. Make sure your taxes are in order before starting the home shopping process. Up-to-date and accurate tax returns are crucial when applying for a mortgage.
Sources: CNBC, CNN Money, US Tax Center