Despite how important it is to file your taxes, there are some instances where you can forget to do so. If this happens, there are a few options to consider. You could pay penalties for failure to file, but you can also ask your state for help in recovering money you owe.
Failure to pay penalty
If you fail to file your taxes or pay them, you may have to pay a failure to pay penalty. Failure to pay penalties are assessed by the IRS. They can be quite serious. The penalties can add up to 25 percent of your unpaid tax balance. Fortunately, there are ways to avoid penalties and reduce them.
The first step is to make sure you’re on track to file your taxes on time. You can do this by checking online or calling the IRS. Depending on your circumstances, you may be able to get more time to file.
Alternatively, you can apply for a payment plan. Payment plans generally allow you to pay a portion of your tax bill over a period of time. Some tax professionals recommend consulting a licensed tax professional for details on how a payment plan may work for you.
Interest on late payments
If you do not file your taxes by the deadline, you are liable for interest on the unpaid balance. The amount of interest varies depending on the nature of the debt, but is typically a fraction of a percent a month.
For example, if you have a $10,000 tax debt, you are liable for a $100 in interest charges. That is a lot of money. You may want to consider the options available to you to minimize this amount.
Aside from the interest you are liable for, you are also subject to other penalties. The most notable is the failure to file a tax return. This penalty is usually 0.5% of the amount you owe per month. However, you can be liable for as much as 25% of the unpaid amount.
Seizing state tax refunds to offset federal taxes you owe
If you have a state income tax refund and you haven’t filed your taxes, the government may take your money to pay your federal taxes. This is called seizing the refund. There are six reasons why the IRS will take this action.
You will need to submit proof that your tax debt is legitimate before the agency will take any action. You can contact the agency directly to find out if you qualify. However, you can also file an appeal with the IRS if you think the offset is incorrect.
Typically, the offset will occur before you receive your paper check. It will indicate the amount of taxes that you owe and how much you had withheld. The notice will ask you to provide receipts for any payments you made.
Refunds are not penalized if you miss the tax-filing deadline
If you’re expecting a tax refund, you probably don’t have to worry about late filing penalties. However, you should file your taxes as soon as possible. The Internal Revenue Service is working to clear its backlog of unprocessed returns.
There are a number of reasons why you might have to pay penalties for failing to file a federal tax return. You may qualify for penalty relief if you were able to demonstrate reasonable cause for your failure to file. For example, if you were seriously ill or had a fire destroy your home, you could qualify.
Failure to file penalties are typically assessed as a percentage of your unpaid tax balance each month. The maximum is 25%. To avoid penalties, you should estimate how much you owe and file your taxes as early as possible.
Resolving your back taxes
Taxpayers who don’t file taxes are at risk for incurring interest and penalties. Having back taxes can be a nightmare, but there are ways to pay them off. If you’re struggling to keep up with your taxes, consult with a tax professional to find out how you can resolve your tax debt.
The IRS may be able to offer you a payment plan, penalty waivers, or other courtesies. If you aren’t familiar with these programs, make sure you do your homework before applying.
There are plenty of companies that promise to help you solve your IRS problems, but there are also a number of scams out there. You don’t want to get ripped off. To avoid getting into a sticky situation, you should be wary of services that request payment upfront.