What Do I Do If I Missed the Tax Deadline? Owe Taxes? Can’t Pay?
What Do I Do If I Missed the Tax Deadline? Owe Taxes? Can’t Pay?April 18th, 2017 was the general deadline for taxpayers who are U.S. residents to file their 2016 U.S. tax returns. If you are a nonresident alien individual and if in 2016 you received wages as an employee subject to U.S. income tax withholding, you were required to file your 2016 U.S. tax return by April 18, 2017. Otherwise, the general deadline to file 2016 U.S. tax return for nonresident alien individuals is June 15, 2017. If you file after those dates and have tax due, you may have to pay interest and penalties. If you don’t owe any taxes or if a refund is due, there is no penalty for failure to file your taxes on time. However, you risk losing a refund if the statute of limitations to claim a refund or credit has expired. More importantly, the statute of limitations will keep running and the IRS can audit you anytime. If you haven’t filed your 2016 return yet, you’re not alone, but you should file your tax return as soon as possible. It is not as difficult as you may think to file a return, but it is important to follow proper procedures in order to avoid adverse tax consequences. There is no need to panic though, as long as you are prepared to act promptly. At U.S. Tax IQ, our tax advisors can assist you if you have not yet filed your U.S. tax return. If you are unsure of what you are required to do, or how to handle your tax situation, speak with us today at 1-844- 829-3678. Read our guide below to be aware of the steps you may need to take.
First Things First: File for an Extension With the IRS
Generally, if you are not managing filing your return on time, you can extend the due date for filing your return. But, if you missed the April 18 deadline and you did not file for an extension, your return will now be late and, if you owed any tax, you may be subject to penalties and interest (see the discussion below).
If your return is due by June 15, there is still time to file your return, or you can apply for an extension to file. If you owe any tax, it is still important to pay it by the due date. The filing extension does not extend the timeline for you to pay your taxes. If failed to pay, penalties and interest may be charged.
In order to request an extension, you should file with the IRS Form 4868. You can download Form 4868 from the IRS website. It is generally best to file the form electronically or have your tax advisor file it on your behalf.
Even if you cannot afford to pay your taxes at the moment, it makes more sense to file your return as soon as possible because the failure-to- file penalty is generally more severe (up to 10 times greater) than the failure-to- pay penalty. If you are unable to afford the payment, you should still pay as much as you are able to.
Work With the IRS to Pay Taxes Owing
You should try to file your return and pay taxes as soon as possible. Generally, those who miss the deadline either ran out of time, or didn’t have the money to pay. If you missed the filing deadline, send in a payment of the amount you estimate that you owe in order to avoid penalties.
The best-case scenario is to come up with the balance owing as soon as you can, so the IRS does not charge you interest. If you are unable to afford paying the balance owing in full, the IRS provides options, including monthly installments or short-term extensions. The IRS is willing to work with those taxpayers who face challenges paying their tax bills, so do not ignore the outstanding amount you owe, as it can result in collection actions.
You could consider financing your tax payment if you are unable to afford paying. Because the interest and fees charged by a bank or credit card company are generally lower than the combination of interest and penalties imposed by the IRS, financing may be a viable option.
In order to apply for a payment plan with the IRS, you will need to file your tax return and then contact the IRS.
● If your amount owing is US $50,000 or less in taxes and penalties, you can fill out the application for an online payment agreement with the IRS;
● You may also qualify for a short-term agreement if your balance is under US $100,000.
Installment agreements often provide individuals with up to 72 months’ timeframe to pay taxes owing, although interest and penalties will continue accruing as you pay off your tax liability.
Summary of Common Payment options
Full Payment Agreement of up to 120 days
If you can’t pay in full immediately, you may qualify for additional time, up to 120 days, to pay in full. There is no fee for this payment agreement, but interest and applicable penalties may apply.
If 120 days are not enough, you may qualify for a monthly installment agreement. Installment agreement can help you set up an automatic payment via a direct debit or payroll deduction. This option will allow you to make timely payments and reduce the chance of missing agreed upon payments.
Offer in Compromise
If you can’t pay and the installment agreement won’t work, you may consider applying for an offer in compromise. It is an agreement between you and the IRS pursuant to which you may agree on a much lower amount of your tax liability payoff.
Temporarily Delay Collection
You can request that the IRS delay the collection until you are able to pay your tax liability.
For any of the above payment options, you should be prepared to provide documentary proof of your inability to pay tax, fill out the collection information on Form 433, and potentially pay some fees.
Late/Non-Filing and Late Payment Penalties
If you filed late and are paying late, it is most likely that you will have to pay penalties. These penalties are automatically assessed by the IRS.
Failure to file or (FTF) penalty = 5 percent per month or partial month, up to a 25 percent maximum.
Failure to pay (FTP) penalty = 0.5 percent per month or partial month, up to a 25 percent maximum.
If both the late filing and late payment penalties are due in the same month, the late filing penalty is reduced to 0.5 percent. Since the late filing penalty can be much higher than the late payment penalty, you should be filing your tax return as soon as you can.
If your return is over 60 days late, there is a minimum penalty of US $205 or 100 percent of the tax owed.
Taxpayers who evade their tax filing obligations and fail to reply to requests made by the IRS may be subject to enforcement actions, including substantial penalties, fees and, under specific circumstances, criminal charges.
Again, the failure to file your tax return keeps the statute of limitations open, and the IRS can audit you at any time.
If you do not pay taxes owed, the IRS has the ability to file a Notice of Federal Tax Lien and Intent to Levy, which can cause damage to your credit score, freezing of your assets and bank accounts, as well as other problems.
Haven’t Filed But Are Due a Refund
You are required to file a U.S. tax return to claim a refund if you are owed one. Failure to file your return will not only prevent you from obtaining a refund, but would also keep the statute of limitations open indefinitely.