Tax day is just around the corner and if you haven’t completed your 2021 return, you’re in good company.
The IRS received more than 91 million returns as of April 1.
But as the clock starts ticking faster leading up to April 18, you may wonder just how bad a late filing penalty could be.
What’s the penalty for filing taxes late?
If you’re due for a tax refund, there’s no penalty for filing your taxes late, according to the IRS. But you can’t get your refund money without filing a tax return. And if you don’t file a return within three years, you could lose the refund money altogether.
Oftentimes, it’s hard to know if you’ll be getting a refund or if you owe taxes until you file your return.
If it turns out that you owe the IRS, you could face two penalties.
The first is the penalty for not filing your taxes by April 18. For that, you’ll pay “5% of the unpaid taxes for each month or part of a month that a tax return is late,” plus interest, according to an IRS post.
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Interest varies on a quarterly basis. The current IRS interest rate for the quarter beginning April 1 is 4% per year. “The penalty won’t exceed 25% of your unpaid taxes.” The monthly penalty stops after five months or until you file your taxes.
If you file more than 60 days late, you’ll have to pay a minimum of $435 or the total value of the taxes you owe, whichever is less.
You could also get hit with a second penalty for late payment of any taxes owed of 0.5% of your unpaid taxes plus interest. That penalty stops only once you pay your taxes. But like the penalty for not filing on time, it won’t exceed 25% of unpaid taxes.
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But since not filing your taxes on time and not paying your taxes on time often go hand and hand, the IRS won’t tack on an additional 0.5% penalty so you would pay a combined 5% penalty.
You can also apply to set up a payment plan with the IRS. If approved, it could lower the penalties you’re required to pay for not filing or paying on time.
File a tax extension
Another way to avoid paying some late penalties is to file for an extension by April 18. That will buy you up to six months longer to file your taxes, but you’ll still have to pay an estimate of what you think you’ll owe using form 4868.
If you don’t pay the full amount you estimate you owe, you face a penalty. If you end up overpaying, you’ll get refund.
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“Make your estimate as accurate as you can with the information you have,” the form states. “If we later find that the estimate wasn’t reasonable, the extension will be null and void.”
Finally, the IRS says it “may be able to remove or reduce some penalties if you acted in good faith and can show reasonable cause for why you weren’t able to meet your tax obligations.”
“A lack of funds, in and of itself, is not reasonable cause for failure to file or pay on time. However, the reasons for the lack of funds may meet reasonable cause criteria for the failure-to-pay penalty,” the IRS said in a post.
Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here
This article originally appeared on USA TODAY: IRS: No penalty for filing taxes late if you’re getting a refund
