What Happens If You File Taxes Late & Owe Money?

Taxpayers are not subject to penalties for filing a late income tax return if they do not owe tax. However, taxpayers who file a late return and owe tax will be assessed penalties and interest from the day the return was due (usually April 15th).
Penalties
1. The two most common penalty assessments are for failing to file a tax return or to pay the tax by the deadline. The failure to pay penalty is one-half percent of the unpaid tax for each month the tax is late and the failure to file penalty is 4.5 percent for each month the tax is late. Additional interest charges accrue on the unpaid penalty and tax on a monthly basis using the federal short term rate plus three percent.
Considerations
2. The IRS may waive penalties if you have a reasonable cause for filing late. Acceptable reasons for untimely filings include, but are not limited to, overseas travel, illness, military service and incarceration. Complete IRS Form 843 and mail it to the office which processes returns for your area to request that your penalties be removed.
Warning
3. If you do not pay or make arrangements to pay the tax owed, the IRS may issue a lien on your assets. The lien will be issued if you fail to pay the tax owed within 10 days of the date listed on the IRS notice advising you of the outstanding amount.
Internal Revenue Service rules for 2010 impose penalties for failing to file an income tax return on time or for paying your taxes late. Those penalties are based on your unpaid or late-paid taxes, says IRS Publication 17 published on the IRS.gov website. But if you failed to file or filed late in a tax year in which you are owed a refund, there is no penalty.
Refund Claim
# IRS rules as of 2010 say you must file a tax return to claim a tax refund. If you file a late return for a refund and your refund claim is correct, you will be paid your refund with no penalty deduction. But if you have had an unpaid tax liability assessed against you in another tax year or have certain other debts such as unpaid court-ordered child support, some or all of your refund will be used to pay the liabilities.
Erroneous Claim
# If your tardy refund claim is in error, you may be assessed a penalty equal to 20 percent of the disallowed amount unless you can show a reasonable basis for why you believed you were owed the refund, says IRS.gov. If you end up actually owing tax for that year, you also may face a penalty of up to 100 percent of the unpaid or late-paid tax if your tardy return was filed more than 60 days late.
Time Limit
# You must file a tax refund claim within three years of the original tax return's due date. If you fail to act in time, you may forfeit your refund, says IRS.gov. Late-filed refund claims normally are processed within 12 weeks. Your claim may be accepted, disallowed or subject to tax examination. Refund claim examinations are conducted in the same fashion as examination of a regular tax return.
All tax returns are due to the IRS on (or postmarked by) April 15. Taxpayers who file late returns are considered non-compliant by the IRS and may be assessed a failure to file penalty and a failure to pay penalty.

Penalties
1. The failure to file penalty is 5 percent of the unpaid tax for each month the tax is late while the failure to pay penalty is ½ of 1 percent for each month the tax is late. A return that is more than 60 days late is assessed a penalty of $135 or 100 percent of the tax, whichever is smaller.
Significance
2. An IRS extension will extend the due date of your return from April 15 until October 15. It will not, however, extend the due date for the payment of tax. An extension is best suited for taxpayers who know they will owe tax but are unable to file their returns by April 15.
Features
3. IRS extensions are requested using Form 4868. You can download the form at irs.gov or call (800) 829-1040 to order it.
Exceptions
4. Taxpayers can choose to request an abatement of penalties by filing IRS Form 843. Usually, approval of an abatement requires that the taxpayer prove a reasonable cause, such as illness or overseas travel, for filing a late or paying late.
Warning
5. Taxpayers who owe tax should contact the IRS and request an installment agreement in order to avoid collection by the IRS.