Tax Returns How to Avoid a Late Filing and Late Payment Penalty

  1. What happens if April 15th arrives and you realize that you won’t be able to file your income taxes on time? How about making a late tax payment? And what if you can file but cannot afford to pay what you owe to the Internal Revenue Service (“IRS”) at the deadline? There is no need to panic about these situations and avoiding a late filing and late payment penalty. These situations are manageable, provided you follow some simple steps.

    Request an extension to file your tax return late.


    If you don’t think that you’ll be able to file your taxes by the April 15 deadline, you can delay filing for six months by getting an automatic extension the IRS. This option is available to every taxpayer. It is accomplished by filing IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return with the IRS prior to the April 15 deadline. Your federal income tax return won't be due until October 15 and you won’t incur a penalty for late filing. You will need to include a payment for your estimated taxes due, which must be 90% or greater than the amount of taxes that you actually owe. Failure to meet these requirements will result in a penalty of .05 - 1% interest due per month for the underpaid taxes.

    Make sure that your extension, along with your check, is mailed and postmarked no later than April 15. You should also confirm that you have the correct mailing address for IRS Form 4868.

    No need to file for a second tax extension.


    In the past, if a taxpayer was unable file by April 15, the automatic extension provided four additional months to file. In the event more time was needed beyond the August 15 due date, a second extension request could be made, provided the taxpayer had a reasonable excuse for late filing. With the six month automatic extension, the IRS Form 2688, Application for Additional Extension of Time to File U.S. Individual Income Tax Return is no longer necessary.

    The late filing penalty is significant.


    So what if you fail to file for an extension by the April 15 deadline? This will typically result in two penalties – the failure to file and the failure to pay. The failure to file penalty is 5% per month up to a maximum of 25% of the total balance due to the IRS. The failure to pay penalty is 0.5% per month plus interest of what you owe. So if you think you might owe taxes but won’t be able to file by April 15, you should certainly make sure that you file for an extension. Doing so will help you avoid the hefty failure to file penalty.

    How to handle being unable to make your tax payment.


    The penalty incurred by a taxpayer who fails to file a return and pay the tax due is much greater than filing but not paying. So in the event you can’t afford to pay the IRS, you’re much better off filing and paying as much as you can, even if it's not the entire amount due. Based upon special circumstances, the IRS may grant a needy taxpayer some relief if one qualifies for:
    • an extension of time to pay the amount of tax due;
    • an installment agreement;
    • a temporary delay of the payment (up to 120 days, interest and penalty free);
    • an Offer in Compromise (which allows you to pay less than you owe).
    While the IRS is willing to work through the payment problem with the taxpayer, proof of special circumstances circumstances will be required. It is best to contact the IRS as early as possible when a taxpayer knows that making the full payment when due will be impossible.

    Tax forms and more information can be obtained on the IRS website or by using the IRS toll-free telephone number 800-829-3676.

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    Michael M. Wechsler

    Michael M. Wechsler
    Michael M. Wechsler is an experienced attorney, founder of TheLaw.com and of-counsel to Kaplan, Williams & Graffeo, LLC. He was also an SVP and chief Internet strategist at Zedge.net and legal consultant at Kroll Ontrack, a leading service e-discovery and computer forensics service provider.

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