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What Are the Penalties and Interest for Late Taxes?

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What Are the Penalties and Interest for Late Taxes?

You might not have to pay as much as you think, or anything at all

The first thing everyone wants to know when it comes to late taxes is whether they will be charged any penalties and interest. In fact, fear of penalties is enough to keep some people from filing their taxes. But some late filers don’t have to pay any penalties at all. Arming yourself with information can help you make the best decisions when it comes to dealing with your late taxes.

No penalties

If you’re due a refund, you don’t owe the IRS any penalties or interest. That’s right. None. Zippo. Zilch. That means you can file a late return without having to worry about getting slammed with a massive bill. And what’s more, if your return is less than three years late, you can still get your refund money too.

So stop procrastinating! File your taxes! There’s a big fat refund check out there with your name on it and you’re not doing yourself any favors letting Uncle Sam hold on to it.

Failure-to-file penalty

The failure-to-file penalty kicks in when you don’t file by the deadline. Normally this is April 15. If you request an extension, you get an extra six months to file and the penalty starts on October 15.

The failure-to-file penalty amounts to 5% of your tax liability for each month (or part of a month) that your tax return is late. The maximum it can be is 25%.

Failure-to-pay penalty

The failure-to-pay penalty amounts to 0.5% of your unpaid tax liability. That means you should always file your return, even if you can’t afford to pay your tax bill right away. It will save you money in the long run.

The failure-to-pay penalty starts on April 15. An extension only gets you out of the failure-to-file penalty for six months. It doesn’t get you out of the failure-to-pay penalty. Technically, when you request an extension before the April 15 deadline, you are supposed to estimate and pay your taxes. You must pay at least 90% of your tax liability in April in order to avoid being charged the failure-to-pay penalty for those six months.

If you arrange for an installment plan with the IRS, the failure-to-pay penalty will be reduced to 0.25%, but only if you filed before the deadline.


You will, of course, also have to pay interest on your unpaid tax liability. The interest rate is currently set at 3%, but it changes every quarter. While it is sometimes possible to get out of paying penalties, you will almost certainly have to pay interest.

State taxes

States also charge penalties and interest for late taxes. Some even provide a calculator that can help you estimate these charges. For example, the New York State Department of Taxation and Finance provides a Penalty and Interest Calculator that could be of a lot of use to NYS taxpayers. Try checking with your state tax authority to see if a similar calculator is available.

What’s the best thing you can do to minimize penalties and interest? File your late taxes as soon as possible. Remember, you might even have a refund waiting for you.


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