Here’s a rundown of what fees you can expect if you don’t file your taxes:
If you don’t file your taxes at all (which is different from not paying your taxes). The IRS charges taxpayers who fail to file federal taxes (a form 1040) 5% of their unpaid taxes for each month their tax return is late (this fee maxes out at 25% of the total tax bill). On top of that penalty, once 60 days have passed and you still haven’t filed, you will pay another fee -- a minimum of $135 or 100% of the taxes you owe (whichever is less). You can avoid these fees if you can prove reasonable cause for not filing on time (like a medical emergency).
You can apply for an extension to file your taxes until Oct. 15, but that doesn't mean you get six extra months to pay if you have taxes due. The IRS levies a 0.5% fee on your unpaid taxes every month until the balance is paid. The deadline for an extension request is April 15.
Your next step might be to file for an extension to pay, which can buy you an extra 120 days. But unless you can prove you had a good reason for not paying on time, the IRS won’t let you off the hook for late fees and interest penalties. That’s why it’s probably best to start an installment plan with the IRS.
“Because of the economic climate going back to 2008, the IRS has become more understanding with these arrangements,” Haywood says.
An installment plan will let you pay your tax bill in monthly increments (up to 72 months), so long as you owe less than $50,000 (for individuals) for one tax year. There are some caveats to consider: the IRS charges an application fee ranging from $43 to
$120, and you will still be charged at least 3% interest on your late payments.
If you want to avoid these fees, you can opt to pay your taxes using a 0% interest credit card. But that’s an option you should consider only if you’re sure you can pay the card off by the end of the promotional period.
The IRS may be understaffed and overworked, but because they use special computer systems to weed out late tax filers, you can expect to receive a letter from them
eventually, Haywood says. The IRS will start by sending you letters and eventually, they’ll start playing hardball.
At a certain point -- which can vary based on your responsiveness to the IRS -- the agency can freeze your bank accounts, put a lien on your house, garnish your future wages (including benefits like Social Security) and dip into future tax refunds you may be entitled to.
Keep in mind that the IRS keeps no time limit for collecting unpaid taxes and charging penalties for not filing. But the government has up to six years from the date of any nonfiled tax return was due to criminally charge you with failing to file a return.
See IRS.gov for more details on late fees.