The deadline for filing your federal income tax return — or an extension of time to file — was April 17. If you missed it, what should you do? And, even more important, what will the IRS do to you?
If you fail to file a tax return or contact the IRS, you are subject to the following:
- Penalties and interest will be assessed and will increase the amount of tax due. You’ll have to pay the IRS interest of 0.5 percent of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, until the tax is paid in full or the 25 percent maximum penalty is reached. The interest rate increases to 1 percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy. You’ll also owe a late-filing penalty, which is usually 5 percent of the tax owed for each month, or part of a month that your return is late, up to five months. If your return is more than 60 days late, the minimum penalty for late filing is the smaller of $135 or 100 percent of the tax owed.
- If you’re self-employed, you will not receive credits toward Social Security retirement or disability benefits. Failure to file results in not reporting any self-employment income to the Social Security Administration.
- The IRS will file a substitute return for you. But this return is based only on information the IRS has from other sources. Thus, if the IRS prepares this substitute return, it will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability.
- Once the tax is assessed, the IRS will start the collection process, which can include placing a levy on wages or bank accounts or filing a federal tax lien against your property.
You should file your return as soon as possible and pay all the tax that is due, if any. Even though you missed the deadline, you’ll still save money by doing so. This is because the IRS late penalty and interest charges are calculated from April 17, so the earlier you file, the less you pay.
If you can’t afford to pay all the tax that is due, you should still file and pay as much as you can. By paying as much as possible now, the amount of interest and penalties you’ll owe will be lessened.
You can enter into an installment agreement with the IRS. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at www.irs.gov.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.
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