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It’s important to try to pay your taxes on time. Read on to see what happens when you don’t. [[{“value”:”
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Taxes are due on April 15. And many people who file their taxes wind up with a refund a few weeks later.
But what if you’re in the opposite boat, and you wind up owing money to the IRS? Ideally, you’ll pay that balance in full by April 15, as being late could have consequences. However, the consequences may not be so severe if you file your tax return on time and pay your tax bill a week late.
You’ll be penalized, but the hit may be minimal
There can be steep penalties for being late with a tax return when you owe the IRS money. There are also separate penalties for paying your actual tax bill late.
However, the penalty for failing to file a tax return on time is 5% of your unpaid tax bill per month or partial month you’re late, up to 25%. The penalty for being late with a tax payment is only 0.5% of your unpaid tax bill per month or partial month your return is late, up to 25%.
Ultimately, both penalties max out at the same amount. But initially, the penalty for being late with your tax return is pretty harsh, whereas the penalty for filing late is less harsh.
So let’s say you file your tax return by April 15 and see that you owe $400. But maybe you don’t have $400 sitting in your checking account. Maybe you have to wait another week to get paid, and from there, you can send the IRS its money.
In that case, you’re not going to be hit with a failure-to-file penalty because you got your return in on time. And you’re only going to be penalized 0.5% on your $400 tax debt because you’re paying a week late. In that case, you’re talking about losing $2. That’s probably not a sum you’re going to cry over.
Also, for the record, in addition to the 0.5% penalty, you accrue interest when you’re late paying a tax bill. On a $400 sum you submit a week after the fact, that interest should be negligible, though.
Of course, the financial hit can be much more substantial when you owe thousands of dollars to the IRS. If you owe $40,000 and you’re a week late paying that bill, you’re looking at a penalty of $200. The point, however, is that paying taxes one week late may not be the end of the world as long as you actually file your return on time and your tax bill isn’t so large.
You can get more time to pay if you need it, but you’ll still be penalized
Let’s say that instead of owing the IRS $400 this tax season, you run the numbers through a tax software program and learn you owe $4,000. That’s a sum you may not be able to come up with in a week. It might take you months to pay that bill off.
What you’ll want to do in that case is reach out to the IRS to get on a payment plan. You’ll still incur the aforementioned penalty as well as interest, but you’ll be considered to be in compliance with paying your tax debt.
Now you may be thinking, “Why does that really matter? I’m still getting penalized, so instead of getting onto a payment plan, why don’t I just send the money when I can?”
But the reason for getting onto the payment plan is that you’re showing the IRS you’re not blowing off your tax debt. If you owe money and make no effort to pay, the IRS could eventually seek to garnish your wages to get repaid. If you don’t want that to happen, getting onto and sticking to a payment plan is your best option.
Paying taxes a week late may not be such a huge deal. But if you owe money, the sooner you’re able to pay it, the better.
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