What happens if I don't file my tax return or file it late?

Filing late and paying late carry two separate penalties, and you can owe both at the same time. Here is how each one works.

Failure-to-file penalty

If you do not file your return by the deadline, the penalty is 5% of your unpaid tax for each month or partial month the return is late, up to a maximum of 25%.

If your return is more than 60 days late, a minimum penalty applies instead: the smaller of 100% of the tax you owe or a flat dollar amount the IRS adjusts each year. Check the IRS failure-to-file penalty page for the current amount.

Failure-to-pay penalty

If you do not pay what you owe by the deadline, the penalty is 0.5% of your unpaid tax for each month or partial month, also up to a maximum of 25%. The rate rises to 1% per month if you do not pay within 10 days of receiving an IRS notice of intent to levy.

When both penalties apply

The two penalties do not simply add together. In any month you owe both, the IRS reduces the failure-to-file penalty by the failure-to-pay penalty, so the combined charge is 5% per month rather than 5.5%.

The failure-to-file penalty stops after five months. The failure-to-pay penalty keeps accruing until you pay the balance or reach its own 25% cap.

Interest

Interest accrues on any unpaid balance on top of the penalties, and it compounds daily. The IRS resets the rate each quarter, so check the current rate before you estimate what you owe. Interest is charged on the penalties themselves as well.

Four things people get wrong

A tax extension is an extension to file is not an extension to pay. Filing Form 4868 (extension) gives you six more months to submit your return, but your payment is still due on the original deadline. If you miss it, the failure-to-pay penalty starts running even though your extension is valid.

If you are owed a refund, there is no penalty. Both penalties are calculated on unpaid tax, so a refund leaves nothing to penalize. You do lose the refund permanently if you do not file within three years of the original due date.

A payment plan reduces the penalty, not the interest. While an approved installment agreement is in effect, the failure-to-pay penalty drops from 0.5% to 0.25% per month. Interest continues at the full rate, and the IRS generally cannot reduce it unless the underlying penalty is removed. See what to do if you cannot afford to pay your tax liability for how payment plans work.

Relief may be available. If you filed and paid on time for the previous three years, you may qualify for a first-time penalty abatement. Reasonable-cause relief is also possible when circumstances outside your control caused the delay.

If you are already late

File and pay as soon as you can. Even a partial payment shrinks the balance that both penalties and interest are calculated on. An unaddressed balance is what leads to liens and levies, and those are much harder to unwind than a late return.

Your Taxfyle Tax Pro can get you filed and help you sort out a payment approach.