Article Highlights:

  • Late filing penalties
  • Interest
  • Three-year statute of limitations
  • Forfeited refunds

If you have been procrastinating about filing your 2023 tax return or have not filed other prior year returns, you should consider the consequences, including the penalties, interest, and aggressive enforcement actions. Plus, if you have a refund coming for a prior year you may end up forfeiting it.

If you haven’t filed your return and you owe taxes, you will be subject to both a late payment and a late filing penalty. You should file a return as soon as possible and pay as much as possible to reduce the penalties and interest.

The failure-to-pay penalty is one-half of one percent for each month, or part of a 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. Should you put off filing, and if the IRS issues a notice of intent to put a levy on your property and any amount billed is not paid within 10 days, the interest rate will be increased to a full one percent per month.

There is also a penalty for not filing on time. The failure-to-file penalty is 4½% of the tax owed for each month or part of a month that your return is late. When combined with the failure to pay penalty the maximum will add up to 25% for the first five months, although the interest penalty will continue to accrue. If your return is over 60 days late, there’s also a minimum penalty for late filing; for returns filed in 2023 it’s the lesser of $450 or 100% of the tax owed on that late-filed return. The IRS periodically increases the amount so it may be different for other years.

In addition to interest and late filing penalties, interest accrues on the unpaid balance at the current federal short-term rate plus 3 percentage points compounded daily. Even if you have received an extension, the late payment penalty and interest will accrue on any balance due, so it’s best to file as soon as possible to minimize them.

Of course, there’s no penalty for filing a late return if a refund is due. Penalties and interest only accrue on the unfiled returns of taxpayers who have a balance due and don’t pay by the deadline. However, you can lose your refund and potentially forfeit any tax credits to which you are entitled by waiting too long to file. In order to receive a refund, the return must generally be filed within three years of the original April due date. 

Taxpayers who continue to not file a required return and fail to respond to IRS requests to do so may be subject to a variety of enforcement actions, all of which can be unpleasant.

You are strongly encouraged to bring yourself into compliance with your federal—and state, if applicable—income tax return filings. Please call this office for help filing back returns and, if necessary, advice on ways to pay or mitigate any tax liability and, when necessary, assist in establishing a payment plan.