The federal income tax deadline has passed for most individual taxpayers. What happens if you haven’t filed your 2020 tax return or paid your tax due?
The good news is that If you are owed a refund, there’s no penalty for filing late.
Also, while any tax that was due is subject to penalties and interest, you may qualify for Administrative Penalty Relief from the penalty portion. You will usually qualify if you have filed and paid timely for the past three years and meet other requirements.
You will still have to pay the interest portion. The IRS doesn’t remove or reduce interest for reasonable cause or as first-time relief. Interest is charged by law and will continue until your tax account is fully paid. Interest charged on a penalty will be reduced or removed when that penalty is reduced or removed. If an unpaid balance remains on your account, interest will continue to accrue until the account is full paid.
If you didn't file and you owe tax, you should file a return as soon as possible and pay as much as you can to reduce penalties and interest, it adds up quickly. Electronic filing options to prepare and file returns, including IRS Free File, are still available on IRS.gov through October 15, 2021.
Failure to File Penalty
This penalty happens when you don't file your tax return by the return due date, or extended due date if an extension to file is requested and approved.
5% of unpaid tax required to be reported
Reduced by the “failure to pay” penalty amount for any month where both penalties apply
Charged each month or part of a month the return is late, up to 5 months
Applies for a full month, even if the return is filed less than 30 days late
Income tax returns are subject to a minimum late filing penalty when filed more than 60 days after the return due date, including extensions. The minimum penalty is the LESSER of two amounts – 100% of the tax required to be shown on the return that you didn’t pay on time, or a specific dollar amount that is adjusted annually for inflation. The specific dollar amounts are:
$435 for returns due on or after 1/1/2020
$210 for returns due between 1/1/2018 and 12/31/2019
$205 for returns due between 1/1/2016 and 12/31/2017
Failure to Pay Penalty
When you don't pay the taxes reported on your return in full by the due date, you will receive this penalty. An extension to file doesn't extend the time to pay.
Failure to pay tax reported on return:
0.5% of tax not paid by due date, April 15; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy
Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid or until 25% is reached
Full monthly charge applies, even if the tax is paid before the month ends
Failure to pay tax not reported on original return and not paid in full within 21 days of the date of notice and demand; 10 business days if the amount in the notice and demand equals or exceeds $100,000:
0.5% of tax not paid by due date in notice - generally 21 calendar days from notice date, 10 business days if the balance equals or exceeds $100,000; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy
Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid
Full monthly charge applies, even if the tax is paid before the month ends
Notices from the IRS
You can call the toll-free number on the notice you receive from the IRS to determine if you are eligible for First Time Penalty Abatement.
You may receive one or more notices if you have not filed your tax return. View what each means and what you need to do here on the IRS website. You may get an initial notice, a reminder and a final notice.
If the IRS files a substitute return (SFAR), it is still in your best interest to file your own return to take advantage of all the exemptions, credits and deductions to which you are entitled. The IRS will typically adjust your account to reflect the correct figures.
Note that a CP3219N Notice is a Notice of Deficiency (90-day letter). Once you receive this notice, you have 90 days (150 days if the notice is addressed to a person who is outside the country) from the date of the notice to file a petition with the Tax Court, if you want to challenge the tax proposed.
We Can Help
If you need help with administrative penalty relief or with the above or any IRS notices you receive, please don't hesitate to email us or schedule a free 30-minute phone consultation with us online.
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