Penalties for unfiled taxes

Now that April 18th has passed, most people have completed their tax returns and won't think about taxes again until next year. Most…but not all.



If you filed for an extension to file your taxes, but bear in mind that extensions only apply to filing your return. You still need to determine if you are going to owe money, and if so, you still need to pay. The penalties for not paying by the original tax filing deadline are ½ percent each month on the amount of tax you still owe after the deadline. If you fail to file a return by the extension date, the penalty increases to 5% for each month, for a maximum penalty of 25%.


Penalties and interest at that rate can add up fast. With the passing of the FAST Act in 2015, the government now has the right to revoke or deny your passport if you owe over $50,000 in taxes to the IRS.


If you can't afford to pay, you can request additional time to pay using the Online Payment Agreement application on www.irs.gov. The extension is usually 60 to 120 days; you’ll still owe interest and penalties but at a lower rate. Another option is requesting an extension of time to pay on Form 1127 (Application for Extension of Time for Payment of Tax Due to Undue Hardship). If you qualify you can request an extension on time to pay and have late penalties waived.


Bear in mind that there are payment options, like an Offer in Compromise or Installment Agreement. To learn more about your options, click here.


Common questions from non-filers


  • How much time does the IRS have to come after me for unfiled returns?

If you do not file a return, the IRS technically has forever to assess taxes as the statute of limitations of assessment (ASED) does not begin to run. But, some good news! The IRS policy is that if you do decide to get up to date and file old returns, you only need to go back and file for the past 6 years. In some circumstances, you may have to go back a little bit further. 


  • What if you complete my returns and find out I owe money? And what if I can’t afford to pay it?

Even if we find that you owe money, we would still file the return. If you don't have the money to pay, this could be the best time for us to settle your back taxes….not in the future when you have money. The only way to settle a tax debt, is to first have the IRS recognize it with a tax return. 


  • What if you file my returns and I find out the IRS owes me money?

This is another reason why we want to act quickly. The rules are written totally in the IRS's favor. While the IRS has forever to assess you if you don't file, you only have 3 years from the date the tax return was due, or two years since the date of payment to file a return to claim a refund.


  • The IRS hasn’t contacted me about my unfiled tax returns. Why should I bother?

While having criminal charges filed against you are a (small) possibility, there is a much bigger reason you should file. When you don’t file your taxes, the IRS basically files them on your behalf using things like 1099s, W-2s, and K-1s. This is called a ‘Substitute Filed Return”. More often than not, the SFR shows that you have a much bigger liability than you actually do! We are able to file much more accurate returns for you by factoring in deductions.


Also, if they file an SFR and you do not sign it, that means they have forever to file and assess you more.


  • What if I don’t have any records, how can you file my return?

Sometimes people don’t hold on to their records. Sometimes they lose them in a flood or fire. Whatever the case, there is hope. W-2s, 1099s, 1098s, K-1s, etc. are all going to be on your IRS records. We can also get an IRS report on you called a W & I Transcript that can tell us all of your income and withholdings.


Next, we use your bank records. We also use an IRS approved tool to get industry averages if you are missing records. It helps us get general guidelines of costs, deductions, etc. It is completely legal and a tool we use in audits when there are missing records. One of the reasons people hire us is because we are able to complete tax returns that others thought too difficult or impossible to complete. 


File late, or not at all? A run down of penalties

  • If you are due a refund there is no penalty if you file a late return. I’d wager to bet that the IRS would love it if everyone due a refund decided to be less law abiding citizens.
  • If you owe tax and you failed to file and pay on time, there are two separate penalties that may apply. The first if for filing late, and the second is for paying late. It’s important to know that interest accrues on top of the penalties and it can add up fast.
  • If you end up filing your tax return more than 60 days after the due date (or extended due date), the minimum penalty is $205. If you owe less than $205, the penalty would be 100 percent of the unpaid tax. Otherwise, the penalty can be as much as five percent of your unpaid taxes each month up to a maximum of 25 percent. Filing on time and paying as much as you can will keep your interest and penalties to a minimum; so file even if you can’t pay.
  • If you pay your taxes late, the penalty is generally 0.5 percent of your unpaid taxes per month. This can build up to as much as 25 percent of your unpaid taxes.
  • If the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.
  • If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 18 due date.


If you have any unfiled taxes or are concerned about penalties, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.