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What is the penalty for filing taxes late?

May 12, 2021

Last Updated: March 11, 2024


The Consequences of Late Taxes

The Consequences of Late Taxes

Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.



Every year, countless Americans find themselves facing the April 15th tax deadline with a sense of dread. Whether it's due to unexpected life events, confusion about the tax process, or simply procrastination, failing to file your taxes on time can lead to significant penalties from the IRS.


But what exactly are these penalties, and more importantly, how can you avoid or minimize them if you're running late?


In this post, we'll immerse ourselves into the consequences of late tax filing, break down the penalties you could face, and offer expert advice on steps you can take to navigate this stressful situation. Whether you're a first-time filer or you've been through the process before, understanding these penalties and how to avoid them can save you money and stress. 


Don't want to read through? Speak to a debt specialist right now.


The Penalty for Filing Taxes Late


There are two different penalties levied depending on if you owe money or if you fail to file your taxes. 


Daily Compounded Interest


In addition to the penalties on both, you are also charged a daily compounded interest on what you owe. This interest rate is set every three months based on the federal short-term interest rate plus three percentage points. At the time of writing, it is 3%. Effectively, it makes your monthly non-payment penalty 0.5025% and the non-filing penalty 5.0025%. 


A daily compounded interest means that you pay interest on your interest and penalties. It adds up very quickly! And while the penalties may cap, the interest accrual does not. 


Extenuating Circumstances


Occasionally, the IRS will forgive the penalty if you have a good excuse. They cannot forgive the accrued interest. Call or attach a written explanation with your filing. It may help lessen your payments.


As Benjamin Franklin wrote, “nothing is certain but death and taxes.” You need to file your federal (and state) income taxes by April 15 (May 17 for 2021) or  file for an extension by that date. An extension generally gives you until October 15 to file, although varies between 60 days and 180 days. If you owe money, you need to pay it by April 15 (May 17 for 2021) to avoid paying a penalty, regardless if you have filed!


Actionable Tips


Here are 3 steps you can take right away to start getting your debt under control:

  1. Review your budget and see where you might be able to cut back on discretionary spending to free up more money for debt payments. For example, limiting restaurant meals or other entertainment expenses even temporarily could make an impact.
  2. Contact your creditors directly to see if they can offer you lower interest rates or different payment plan options to help lower your monthly payments. Being proactive goes a long way.
  3. Consider consulting with a non-profit credit counseling agency to go over your full financial situation. They can often negotiate with creditors on your behalf to lower interest rates as well.

For more help getting out of debt, check out these other resources on our site:

FAQs

  • What's the fastest way to get out of debt?

    While it requires discipline, the fastest way to get out of debt is to use the debt avalanche method - focus on paying down your highest interest debt first while making minimum payments on everything else. This saves you the most money overall on interest payments.

  • How much does a non-profit credit counseling service cost?

    Most non-profit credit counseling services charge relatively low fees compared to other debt help options. Many charge between $20-$75 to set up a debt management plan, with monthly fees of around $25 after that. Services are often free for those facing financial hardship.

  • When is debt settlement a good option?

    If you're wondering, 'When is debt settlement a good option?' it's important to understand that debt settlement works best for those with unsecured debts such as credit cards, medical bills, or personal loans, owe $7,500 or more, and have a reasonable amount of disposable income to allocate towards settlements after covering living expenses. For a deeper understanding and to discover how it can transform your finances, you can explore our detailed guide on the benefits of debt settlement.

  • Can I negotiate with creditors on my own?

    You can try negotiating lower interest rates or payments yourself but may not have as much leverage compared to using a credit counseling agency or debt settlement firm. Their experience and legal resources often result in better outcomes. Still, it doesn't hurt to call and explain your situation.

  • What can I do if I just can't make even minimum monthly payments?

    If you can’t make payments month-to-month, consider contacting creditors anyway to see if they’ll agree to reduce or defer payments temporarily. Non-profit credit counseling agencies also have programs focused on hardship that go beyond minimums. Getting some relief buys you time to improve your situation.

Pacific Debt, Inc.


Pacific Debt is an award winning debt settlement company. If you’d like more information on how to get out of debt, we are happy to help. We will explain all your options and help you decide which is the best option for you. We can even refer you to trusted partners who can better meet your needs. 


If you have more questions, contact one of our debt specialists today. The initial consultation is free, and our debt experts will explain your options to you.


*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions. 

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