Tax Day is Here! File Your Tax Return Today or Face the Consequences - Kiplinger's Personal Finance

Happy Tax Day 2021! We normally "celebrate" Tax Day on April 15, but the IRS pushed the due date back to May 17 this year because of the COVID-19 pandemic. So, if you haven't already filed your 2020 federal income tax return and paid any tax due, you have until midnight tonight to get it done. (You can request an extension to file your return until October 15, but you still have to pay what you owe today.)

But, of course, some people will miss the Tax Day deadline. And, as you might guess, the IRS doesn't take that lightly and will make you pay a price. If you're curious about what punishment the IRS is going to bring down on you, here's a glimpse of the interest and penalties you may face if you don't act before the tax deadline.

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Interest

Interest accrues on your unpaid balance and compounds daily from May 17 until you pay the balance in full. Interest rates on underpayments of tax are set each quarter. For non-corporate taxpayers, the rate is equal to the federal short-term rate plus three percentage points. The current interest rate for underpayments is 3% (for second quarter of 2021).

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Late Payment Penalty

If you don't pay the tax you owe on time, the IRS will impose a late payment penalty equal to 0.5% of the tax owed after May 17 for each month, or part of a month, the tax remains unpaid. The penalty is capped at 25% of the amount owed. The rate jumps to 1% ten days after the IRS issues a final notice of intent to levy or seize property. However, the penalty is only 0.25% for each month, or part of a month, in which an IRS installment agreement is in effect.

You won't have to pay the penalty if you can show "reasonable cause" for the failure to pay on time. Reasonable cause is based on all the facts and circumstances in your situation. The IRS will consider any sound reason for failing to pay your taxes on time, including:

• Fire, casualty, natural disaster or other disturbances;
• Inability to obtain records;
• Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer's immediate family; or
• Other reason that establish that you used "all ordinary business care and prudence" to meet your federal tax obligations but were nevertheless unable to do so.

Simply not having the money, in and of itself, is not reasonable cause for the failure to pay taxes on time. However, the reasons for your lack of funds may meet reasonable cause criteria for the failure-to-pay penalty.

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Failure-to-File Penalty

If you don't file your return by Tax Day, the IRS can impose a 5% failure-to-file penalty on any unpaid taxes for each month, or part of a month, that a tax return is late. The penalty won't exceed 25% of your unpaid taxes, though.

The late filing penalty is calculated based on the tax that remains unpaid after May 17 or, if an extension is granted, after October 15. Unpaid tax is the total tax shown on your return reduced by amounts paid through withholding, estimated tax payments, and allowed refundable credits.

If your return is over 60 days late, the minimum failure-to-file penalty is the smaller of $435 (for tax returns required to be filed in 2021) or 100% of the tax required to be shown on the return.

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Double Penalties

If you still haven't paid what you owe five months after Tax Day, the failure-to-file penalty will max out, but the failure-to-pay penalty continues until the tax is paid, up to 25%.

If both a failure-to-file and a failure-to-pay penalty apply in the same month, the combined penalty is 5% (4.5% late filing and 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%. The maximum total penalty for failure to file and pay is 47.5% (22.5% late filing and 25% late payment) of the tax.

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May 17, 2021 at 04:15PM
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Tax Day is Here! File Your Tax Return Today or Face the Consequences - Kiplinger's Personal Finance
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