Missed the April filing deadline for your 2023 federal income tax return? The IRS has several options to help you get back on track. Here’s what you need to know to minimize penalties and interest charges and get your taxes squared away.
Payment Programs and Penalty Relief
For those struggling to pay the amount owed, the IRS offers important payment programs and first-time penalty relief for those who qualify. It’s crucial to pay as much as you can as soon as possible to limit penalties and interest charges, which can grow quickly. The interest rate for unpaid taxes is currently 8%, compounded daily. Late-filing penalties are generally 5% per month, and late-payment penalties are 0.5% per month, both maxing out at 25%.
Key Penalty Details
- Late-Filing Penalty: If a return is filed more than 60 days after the due date, the minimum penalty is $485 or 100% of the unpaid tax, whichever is less.
- Failure to Pay Penalty: Generally 0.5% of unpaid tax per month until the tax is fully paid or 25% is reached. Rates may change, so check the latest information on the IRS Penalties page at https://www.irs.gov/payments/penalties.
Limiting Penalties and Interest
Taxpayers can reduce late-payment penalties and interest by paying electronically through IRS Direct Pay, a free service available on IRS.gov. Visit the Make a Payment page at https://www.irs.gov/payments for more electronic payment options.
File and Pay What You Can
Filing your return and paying any taxes owed as soon as possible helps reduce penalties and interest. Remember, an extension to file is not an extension to pay. Penalties and interest still apply to taxes owed after April 15, and interest is charged on tax and penalties until the balance is paid in full.
Qualifying for Penalty Relief
If you receive a penalty notice from the IRS, read it carefully and follow the instructions for requesting relief. Information on the types of penalties, how to request relief, and how to appeal a penalty decision is available on the Penalty Relief page at https://www.irs.gov/payments/penalty-relief. First-time penalty abatement may be available for taxpayers who have filed and paid on time and have not been assessed any penalties in the past three years.
Payment Options for Those Having Trouble Paying
Even if you can’t pay your taxes in full by the deadline, file your return on time to avoid failure-to-file penalties. The IRS offers several payment options, including:
- Short-term Payment Plan: For balances under $100,000, giving up to 180 days to pay in full.
- Long-term Payment Plan: For balances under $50,000, allowing monthly payments for up to 72 months. Direct debit is required for balances between $25,000 and $50,000, reducing the chance of default and saving on postage costs.
Interest and late-payment penalties continue to accrue on unpaid taxes, but the failure-to-pay penalty is cut in half with an installment agreement. More details are on the Payment Plans page at https://www.irs.gov/payments/payment-plans-installment-agreements.
Automatic Extensions
Some taxpayers automatically qualify for extra time to file and pay taxes without penalties and interest, including:
- Taxpayers in Disaster Areas: Extra time is granted automatically.
- U.S. Citizens and Resident Aliens Abroad: Those living and working outside the U.S. and Puerto Rico.
- Military Members: On duty outside the U.S. and Puerto Rico or serving in combat zones.
Adjust Withholding to Avoid Future Surprises
To avoid unexpected tax bills or penalties next year, check your withholding annually using the Tax Withholding Estimator at https://www.irs.gov/individuals/tax-withholding-estimator. Wage earners can assess their tax situation and determine if they need to submit a new Form W-4 to their employer.
For more information and to explore your options, visit https://www.irs.gov.