US taxpayers who owe the Internal Revenue Service (IRS) taxes but have not yet filed for 2019 have been advised to act now to avoid larger penalties that come into force after September 14.
Taxpayers who submitted an extension to the IRS have been reminded that while they have until October 15 to file, it is not the same as having an extension to pay. Importantly, any taxes owed after the July 15 deadline are subject to the failure to pay penalty and interest - and these are about to ramp up further from next week.
And anyone who didn't request an extension, and still owes taxes, faces both the failure to file and the failure to pay penalties, so should certainly file now and pay what they can before larger penalties take effect after September 14.
How big are the penalties?
The penalty for not filing a federal tax return by the due date, or extended due date, is generally 5% of the unpaid tax for each month or part of a month that a tax return is late, up to 25% of the unpaid tax. However, if the return is more than 60 days late, a minimum penalty applies.
If no return has been filed after 60 days, the minimum penalty that can be charged is $435 or 100% of the unpaid tax, whichever is less. With the tax deadline having been extended to July 15 as a result of the COVID-19 pandemic, this year that important 60-day date occurs after September 14. In addition to penalties, interest will also be charged on any tax not paid by the July 15 due date.
What should late filers do?
With the new deadline fast-approaching, there is little time for tardy taxpayers to waste in loading up the best tax software or visiting the IRS website to prepare and e-file a 2019 individual return.
Importantly, if you’re owed a tax refund - and the majority of taxpayers usually are - remember that no penalty is charged on the late return filed by a taxpayer. The money that you receive back may prove extremely useful too, particularly in such uncertain times, where the incomes of many Americans have been dented sufficiently to push them towards personal loans and credit cards to help them get by. If you think you’re owed money from years’ gone by, you’ll need to file a prior tax year return to find out exactly where you stand.
Are there any options that the IRS might offer?
Also consider that penalty relief may be available for taxpayers who have not been assessed any penalties for the past three years. Even if you don’t qualify for this first-time penalty relief, you may still be able to have your penalties abated if your failure to file or pay on time was due to reasonable cause and not willful neglect. Remember, however, that interest cannot be abated.
The IRS also has options for taxpayers who owe but can't pay the full amount. Qualified taxpayers can choose to pay any taxes over time through a payment plan, including an installment agreement that can be set up in minutes on IRS.gov. Ultimately, your specific tax situation will determine which payment options are available to you, but you'll need to contact the IRS to find out.
To avoid surprises next year, taxpayers can also use the tax withholding estimator on the IRS site to do a paycheck checkup to hopefully have the correct amount of tax held back during the year. A final reminder is that unemployment compensation is generally taxable, so if you’re out of work, and receiving benefits, you’re still likely to have obligations to the IRS to fulfill.
If you’re yet to file your taxes, you’re running short of time to avoid the higher penalties that will soon come into play. For fast and accurate filing, using the best tax software is a must if you want the security of knowing your finances are up straight, as they should be.