April 15 – the big deadline. The day you have to get your taxes in or else.
Or else what?
If you’ve ever scrambled to meet that deadline – and a lot of us have – you may have wondered what would actually happen to you if you missed it. Would you get dragged off to IRS jail? Or pay a hefty fee?
The bad news is that there are serious consequences for missing the deadline. The good news is that you have options, and in some cases, you don’t have to meet the deadline or file at all.
Here’s an overview.
If You Make Below a Certain Threshold, You Don’t Have to File at All
Technically, if you made under a certain amount, you don’t actually have to file taxes, so you can forget about that deadline altogether. However, the threshold amounts below only apply to W-2 income. If you are self-employed, you must file a return if your earnings are $400.00 or more.
The threshold amount varies depending on your age and marital status.
Here’s the breakdown for 2019, paying 2018 taxes:
- Single, under 65: $12,000
- Single, 65 or older: $13,600
- Married filing jointly, both spouses under 65: $24,000
- Married filing jointly, one spouse under 65: $25,300
- Married filing jointly, both spouses 65 or older: $26,600
- Married filing separately, any age: $5
- Head of household, under 65: $18,000
- Head of household, 65 or older: $19,600
- Qualifying widow or widower with dependent child, under 65: $24,000
- Qualifying widow or widower with dependent child, 65 or older: $25,300
If you make below the income threshold and don’t file taxes, it is unlikely the government will expect or file a return for you. But you’ll also miss out on some tax credits and/or refunds that could help you out.
For instance, under the Earned Income Tax Credit, your tax liability could actually work out to less than $0, in which case, the IRS pays you. That tax credit could be worth up to $6,431 for low-income people, but you have to file your tax return to get it.
If You’re Owed a Refund, You Don’t Have to File on Time
If you’re owed a refund, you also don’t have to worry about missing the deadline. The IRS won’t come after you. It’s mainly interested in making sure it gets its money on time, it’s fine with paying you later.
If you’re owed a refund, you have three years plus the period of any extension of time for filing the return to claim a refund or credit. However, if you wait until after the three year period, the refund or credit amount is limited to the tax paid within the two years immediately preceding the filing of the claim. If no tax was paid within the two years prior to the claim, you lose your refund/credit in its entirely.
When You Owe the IRS Money, You Have to Sweat The Deadline
Penalties, interest, and other consequences start to kick in when you owe the IRS money.
There’s a difference in penalties when you fail to turn in your entire tax return on time, vs. when you turn in all your paperwork on time but don’t pay on time. This is called “failure to file” vs. “failure to pay.”
Failure to File
When you fail to file your entire tax return on time, you’ll get hit with a late fee that adds up to 5% of your outstanding tax bill for each month you’re late. It’s capped out at 25% of your outstanding bill.
But there’s an added complication. If you’re more than 60 days late on filing your tax return, the minimum penalty is $210 or 100% of your outstanding bill, whichever is the lesser number.
Failure to Pay
When you file your tax return on time but don’t pay on time, you actually get hit with a lower penalty. It’s 0.5% of your total outstanding bill for each month you’re late, and it caps at 25%.
However, you also have to consider interest when you fail to pay on time. Interest starts accruing on your first day, and it compounds on a daily basis. The rate is set to the Federal short-term interest rate (as of this writing, that’s 2.72%) plus 3%. So at the moment, your interest rate would be 5.72%.
The short-term interest rate changes once every three months so if that rate rises, so does the interest on your late tax bill.
If You Can’t Pay
You’re allowed to file an extension if you know you’ll be filing your taxes late—but this only applies to filing a tax return, not paying your tax bill. You have to pay by April 15 regardless of whether you’ve filed an extension.
The extension will buy you an additional 6 months to file the return without failure-to-file penalties—so your new deadline is October 15. The form to use is IRS Form 4868.
On that form, you’ll be asked to estimate your taxes owed for the year. You’re best advised to pay some of it when you send in your request for an extension—because the extension only buys you time to file your tax return, not pay your tax bill.
IRS Payment Plans
If you can’t pay on time, the IRS will work with you. There are several plans available that allow you to pay your tax bill in installments.
The breakdown is as follows:
Short-Term Payment Plan: Pay the entire owed amount, plus penalties and interest, in 120 days or less. No setup fee.
Long-Term Payment Plan (Direct Debit): Pay your entire owed amount, plus penalties and interest, in more than 120 days in multiple installments through direct debit. Pay a $31 setup fee if you apply online or a $107 fee if you apply by phone, mail, or in-person.
Long-Term Payment Plan (Non-Direct Debit): Pay the entire amount owed, plus penalties and interest, in more than 120 days in multiple installments. Pay using a non-direct debit electronic method, such as a credit or debit card, or check or money order. Pay a $149 setup fee if you apply online; $225 if you apply by phone, mail, or in person.
You’ll still accrue interest and penalties under these plans, but at least you won’t have to face more dire consequences (we’ll get to those next). Sometimes the setup fee can be waived or reduced, if you’re considered a low-income taxpayer.
The Worst-Case Scenario
If you don’t pay your taxes at all for a long period of time, the IRS has ways of making your life miserable. For instance, by garnishing your wages.
This can happen if you owe other debts, too—but unlike most types of debt, the IRS can garnish your wages for unpaid taxes without receiving a judgment from a court. It can also take more out of your paycheck than most creditors are allowed to take.
The IRS can also seize your assets, put liens on your property, or take payment from your future tax refunds to pay your tax debt in the present. Generally, the IRS decides on a case-by-case basis which action to take.
our Best Option If You Can’t Pay
If you can’t afford to pay your tax bill on time, your best bet is probably to file your tax return on time anyway or apply for the extension, and then file by the new October deadline. The penalty for failing to pay is less than that for failing to file.
Experts will also tell you to pay what you can as soon as you can, even if it’s not the whole amount. The less you owe the IRS, the less you’ll pay in penalties because interest accrues on the amount of taxes you’ve failed to pay.
And if you’re struggling to pay, get in touch with the IRS. You’ll able to work out a payment plan that will keep your assets from being seized or your wages from being garnished.
Experiencing Tax Troubles?
Talk to an experienced tax attorney. We’ve seen everything and we’d be happy to help you sort this out so you can get back to your life.
Give us a call at 404-551-5538 to schedule your free consultation now.
- The IRS, Cryptocurrency and Your Taxes: What You Need to Know - July 20, 2022
- Resolving Tax Debt with the IRS Fresh Start Program - June 17, 2022
- What to Do When You Receive an IRS Tax Lien Letter - April 15, 2022