Haven’t Filed Your Tax Return? How Bad is it?

September 14, 2015 : Mike Slack

Editor’s Note: Umm, what day is it? If lose track of time and, in turn, tax deadlines, The Tax Institute has some news about what happens if you don’t file taxes.

Sometimes unexpected events in life get in the way of doing things by a certain time. Like when you intend to file a tax return by April 15. So what happens if you miss the deadline? How bad is it? We are here to help you figure out the next steps, if you haven’t filed your tax return yet.

I filed a tax return filing extension.

If you filed a Form 4868 via the mail or electronically by April 15, then you’re in pretty good shape, regardless of whether you expect a refund or to owe the IRS money. So long as you file your tax return by the extended October 15 deadline the IRS will not assess the failure to file penalty. If your return results in you owing the IRS, you may be subject to a late payment penalty and minimal interest on the amount owed. Currently, the late payment penalty equals 0.5% of the amount owed for each month (or partial month) that the tax remains unpaid (up to 25%), while the current interest rate on underpayments hovers around 3.5%.

That being said, if you don’t file your return by October 15, the IRS will assess the failure to file penalty from April 16 forward, and your extension will essentially be ignored. Needless to say, we recommend filing by the extension deadline.

I did not file an extension, but expect a refund.

If you expect a refund, but didn’t file an extension, you’re still in great shape. To be honest, the IRS is more than willing to hang on to your refund as long as you will let them. When you’re due a refund, the IRS will not charge any late filing penalties or charge interest. Just make sure you file your return before the time limit expires for claiming your refund, which is generally three years.

I did not file an extension and expect to owe.

If you did not file an extension and expect to owe the IRS additional taxes when you do file, the IRS starts tacking on failure to file and failure to pay penalties beginning April 16, 2015. Generally, the failure to file penalty, also known as the delinquency penalty, runs at a severe rate of 5% up to a maximum rate of 25% per month (or partial month) of lateness.

Unfortunately, it gets worse. Since it has already been 60 days since April 15, the IRS asserts a minimum failure to file penalty of at least $135. For example, if you didn’t file an extension and only owe the IRS $1, they’ll still charge you the $135 penalty just because you’re filing past the 60-day window.

Can I get the IRS to excuse the penalties?

Both the failure to file and failure to pay penalties may be excused by IRS if the delay in filing is due to “reasonable cause.” Typical causes the IRS may allow include death or serious illness in the immediate family, postal irregularities or bad advice from an attorney, tax professional or accountant.

The IRS also has a little-known policy referred to as “First Time Abatement”. Under this policy the IRS will remove penalties from returns for taxpayers with clean tax compliance history. To qualify, you must have had no penalties added to or removed from your account for the previous three years (except for the estimated tax penalty), must have filed all required returns and must be current with all required tax payments.

Don’t forget that H&R Block offices are open year-round. So if you still need help filing a 2014 return – whether you had an extension or not – make an appointment now.

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Mike Slack

Mike Slack

The Tax Institute, H&R Block

Mike Slack, JD, EA, is a senior tax research analyst at The Tax Institute. Mike leads research teams focused on business and investment tax issues.