IRS Penalties for Late Filing and Payment of Federal Taxes in 2021

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Tax Day in the U.S. usually falls on April 15—the date by which individual tax returns must be submitted to the IRS. The IRS charges penalties and interest if you file your taxes or make your payment after this date. 

You can file for an extension by April 15 if you need more time to prepare your return. This will give you an additional six months to file, but you must still pay any tax due by April 15, or you’ll be penalized. Learn the consequences of late or unfiled payments and how to avoid them. 

Due to the disruption caused by Hurricane Ida, Louisiana residents and business owners have until Jan. 3, 2022, to file and pay their quarterly individual and business tax returns. Residents of Mississippi and certain counties in New York, Pennsylvania, and New Jersey are also eligible for relief. You can consult IRS disaster relief announcements to determine your eligibility.

The IRS Penalty for Late Payments

The late-payment or failure-to-pay penalty applies to any portion of your federal tax debt that remains outstanding as of the due date.

The IRS imposes a failure-to-pay penalty of 0.5% for each month or part of a month that the tax goes unpaid, up to a total of 25% of the remaining amount due.  

The Penalty for Filing Taxes Late

The penalty for filing late is steeper at 5% of your tax due that remains unpaid as of the filing date. The penalty is a percentage for each month or part of a month that your return is late, and it will never exceed 25% of your unpaid taxes.

The clock begins ticking at your tax deadline, which is usually April 15 unless you filed for an extension by that date or the IRS otherwise extended the tax filing deadline. If you filed for an extension, you'd have until October 15 before this particular penalty kicks in.

In 2021, if you were affected by the winter storms deemed Disaster Zones by FEMA, you have until June 15 to file your federal tax return. If you were affected by Hurricane Ida, you have until January 3, 2022. Otherwise, you have until May 17, 2021.

The penalty accrues until you file your return. The longer you wait, the worse it gets.

You'll pay at least $435 or a penalty equal to 100% of the tax you owe—whichever is less—if you fail to file within 60 days of the due date.

An exception to the late-filing penalty exists. If a refund is due from the IRS, there’s no penalty for filing a late return. 

IRS Quarterly Interest Rates

Interest compounds daily and is typically added to any unpaid tax from the time the payment was due until the date the tax is paid. The rates are set by the IRS every three months at the federal short-term rate, plus three percentage points.

The Internal Revenue Code requires that the IRS review its interest rate quarterly in order to keep pace with the economy, but this doesn’t mean that the rate will always change quarterly. It won’t change unless there’s been a somewhat significant swing in the national economy. 

The IRS announced on August 25, 2021, that the interest rate for taxpayers other than corporations is the federal short term rate plus 3% for the fourth quarter of 2021.

If You Neither File Nor Pay

If you are not covered by a government extension and still have yet to pay your taxes by October—five months after the deadline—the failure-to-file penalty will max out, but the failure-to-pay penalty will continue until the amount you owe is paid, up to 25%.

Request an Extension, and Avoid the Penalty

​You should immediately file a request for an extension of time if you know that your return is probably going to be late. It's a simple matter of filing Form 4868 with the IRS, although your request won't be accepted if the main filing deadline has already come and gone.

In most years, you must submit the form by April 15. Extensions until May 17 were automatic in 2021, or until June 15 for those affected by winter storms in Texas, Louisiana, and Oklahoma. For victims of Hurricane Ida in Louisiana, extensions are automatic through January 3, 2022. There's no need to file a request for any of these circumstances.

You don't have to wait until October 15 to file your late payment if you can submit your return before that time.

You may also want to file for an extension even if you've completed your return, and it looks like you owe taxes. This at least pushes your filing deadline back to October, and it helps you avoid the more serious failure-to-file penalty.

An extension will give you time to take your return to a tax professional to make sure that you're not missing a deduction, a tax credit, or some other detail that could help you out. 

Estimate the amount you think you'll owe when you request an extension, and make a payment when you submit the form.

Will the IRS Waive Tax Penalties?

The IRS might provide administrative relief and waive the penalties if you qualify under its First Time Penalty Abatement policy.

To qualify, you must not have had any penalties in the prior three tax years. You must also have filed your current year's tax return on time and have paid (or arranged payment for) any tax you might owe.

The IRS might waive the late-payment penalty if you can show a reasonable and justifiable reason for not paying on time. Administrative relief might also be provided if you received misleading advice from the IRS, but this is harder to prove and claim.

You can contact the IRS by mail or by telephone to find out more.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to them. For current tax or legal advice, please consult with an accountant or an attorney.