You may be filing taxes late in tax season if…
It’s April and this year 4 million more taxpayers are waiting until the last two weeks to file their tax returns. A new law meant to combat fraud contributed to refund delays, causing more taxpayers to wait to file their returns. But procrastination is not new: in the past, more than one in three taxpayers who filed before the April deadline waited until April to file.
So who are these late-season filers? Last year, they were:
- not alone: more than 41 million taxpayers waited until April to file;
- more likely to have complex returns: 77 percent of April returns are Form 1040s compared to 67 percent earlier in tax season;
- still likely to get a refund: 65 percent of April returns got a refund compared to 80 percent of early filers;
- more likely to get a smaller refund: the average refund was 16 percent lower, but still more than $2,000;
- more likely to get help from a person: tax professionals and volunteers prepare 61 percent of e-filed April returns but only 57 percent of those returns in January to March;
- more likely to paper file: 52 percent of all paper returns were filed during April.
Then there are those really late filers. These taxpayers who file their returns after the April deadline were:
- even more likely to have complex returns: 87 percent of returns received after April were 1040s;
- getting bigger average refunds: while fewer taxpayers get a refund after April, those that do get much larger refunds on average – more than $4,000;
- less likely to get a refund: only 53 percent of returns processed after April got a refund;
- much more likely to use a tax professional: tax professionals prepared 85 percent of returns e-filed after April compared to 60 percent of e-filed returns before April.
Procrastinators beware of penalties
“The monthly penalty for not filing a tax return is 10 times greater than the penalty for not paying in full,” said Rigney. “The best way to avoid this penalty, which could quickly add up to 25 percent to their tax bill, is to file a completed tax return or apply for an extension. However, an extension doesn’t apply to any payments due."
In other words, the extension to file is not an extension to pay for those taxpayers who owe the IRS money. Taxpayers must pay at least 90 percent of their 2016 tax bill by April 18 or they will face late-payment penalties and interest.
The monthly penalty for not paying in full is 0.5 percent of the unpaid balance per month with a maximum of 25 percent. The monthly penalty for not filing a tax return is 5 percent and capped at a maximum of 25 percent. For example, for someone who owes $1,000, the failure-to-pay penalty starts at just $5 per month, but the penalty for failing to file a return starts at $50 per month and thus maxes out very quickly.
Payment options for taxpayers who owe the IRS
If a taxpayer can’t pay their balance due all at once, they have payment options including requesting a short-term extension to pay, making an installment agreement or even paying with a credit card. In some instances, the taxpayer may qualify for an offer-in-compromise. By working with the IRS, taxpayers may reduce or eliminate their penalties.
“If they’re having trouble paying their tax bill, taxpayers can save time and money when they are short on both by talking to a tax professional about their options. A tax professional can help them determine the best way to pay their tax bill in their unique situation,” said Rigney.
More procrastinators in final rush to file tax returns
With more taxpayers waiting until April to file, taxpayers who use a tax professional should book their appointments now and gather the documents they need. Taxpayers who file themselves online or using DIY software should also start as soon as possible, entering information as they gather it from their tax and financial documents.