It’s Tax Day: What happens if you do not file a tax return or pay your taxes

Tax day is here! What can you expect if you do not file your taxes or pay your taxes on time?

The first step is to prepare your tax returns. The returns must be prepared and postmarked or e-filed by midnight or they are deemed late. If you do not file your tax returns you can be penalized by the IRS. There are non-filing and late-filing penalties that are assessed by the IRS based on the amount of tax you owe.

The “failure to file” penalty is usually 5% of the tax owed for each month up to a maximum of 25%. If your return is over 60 days late, there's also a minimum penalty for late filing which is the lesser of $485 (for tax returns required to be filed in 2024) or 100 percent of the tax owed.

So many tax payers I have worked with in the past have not filed a return because they knew they would not be able to pay the taxes that they owed. My advice is to file the return anyway. There are a few good reasons for doing this, but the first is that you will avoid the failure to file penalty and save yourself that penalty. The next reason is that your return is likely better for you than what the IRS would believe you owe if they prepare a Substitute for Return (SFR).

If you are not able to pay your tax return on time, you will be assessed a “failure to pay” penalty. The failure to pay penalty is one-half of one percent for each month, up to a maximum of 25%, of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. The rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property. In addition to the penalty, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily. That means that every day, your interest accrual increases because it adds the previous day’s interest to the balance owed.

But, what if you file an extension for your tax return? If you file an extension today, you can delay the filing of your income tax return for six months from the due date. This extension is automatically granted, but the extension is only an extension to file - not an extension to pay your taxes. So, your tax is still due today and if you fail to pay the tax owed today (even if you file on time after the extension) you will owe penalties and interest for the failure to pay on time.