“ If you’re due a tax refund, there’s no penalty for late filing.”
America’s annual financial freak-out is nearly here but if you don’t have your 1040s, W2s, 1099s and even your Form 8949 (worthless stocks) ready to go, you may be one of millions of taxpayers who don’t need to burn the midnight oil before the filing deadline of 11:59 p.m. on April 18.
Because, if you’re getting a refund, there’s no penalty for filing your return late.
Taxpayers understandably get nervous about hitting the tax filing deadline, for good reason. If you file late and owe taxes, you’ll face three separate penalties that can pile up fast, as in the case of a hypothetical taxpayer owing $1,000 in federal tax.
First, the interest clock starts ticking on the due date of the return and runs until the full amount of the tax due is paid. The rate is the federal short-term rate, which currently is 7%, plus 3%. Also, the interest compounds daily. The interest on $1,000 in tax paid 60 days late would be $11.57; for 90 days past due, the interest totals $17.41.
Second is the failure-to-pay penalty, which is 0.5% per month on the amount of the unpaid tax, up to a maximum of 25% of the tax due. In the case of $1,000 owed, this penalty would be $10 for 60 days late, and $15 for going 90 days past the deadline.
Finally, there’s the truly painful IRS failure-to-file penalty, which is “5% of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%.” So, if you owed $1,000 to the feds and filed two months late, your penalty would be $100.
But it gets worse: If you go past the 60-day mark, the failure-to-file penalty jumps to the lesser of $450 or 100% of the tax owed. Which means filing 90 days late jacks the penalty on your $1,000 tax bill to $450.
Add it all up, and being 60 days overdue on a $1,000 tax bill will cost you $121.57, while going 90 days past the deadline socks you with penalties and interest charges of $482.41.
Here’s where the unorganized, harried, but savvy taxpayer gets a break: all of those penalties are calculated on the amount of tax you owe. If you’re getting a refund, you owe $0 and, as any third-grade math student can tell you, any percentage of $0 is $0.
Read: What happens if you can’t pay your taxes? The IRS has a payment plan — but read this before you do anything.
To make this work, you need to know that you’re getting a refund. If you received one last year and your earnings and withholding situation hasn’t changed, you’re likely getting a refund again.
Just know that refunds this year are likely to be smaller than for the 2021 tax year, and keep that in mind. To check the likelihood of receiving a refund without calculating your entire return, you can use the IRS tax estimate calculator.
The IRS is OK with you not filing when you’re owed a refund, so much so that the agency lets the clock run for a full three years before you forfeit the cash. In fact, the IRS currently is looking for almost 1.5 million taxpayers who’ve left nearly $1.5 billion in unclaimed 2019 tax year refunds on the table. Even more generously, the tax agency has extended the deadline to claim the 2019 refund until July 17, 2023 to allow for the fact that the 2019 tax filing deadline landed at the start of the COVID pandemic.
Miss that July deadline, and the refund is gone forever, transferred straight to the U.S. Treasury. Also lost are any tax credits for that year, such as the Earned Income Tax Credit, and your lifetime earnings history will be incomplete for Social Security and Medicare determinations.
Naturally, the IRS really wants taxpayers to file on time, so that the agency can handle the more than 168 million individual returns expected during the 2023 filing filing season efficiently. So even if you are getting a refund, do right by the beleaguered workers of the IRS, who are only just now beginning to get some breathing room after many years of budget cuts and excess workloads. File electronically and opt to receive your refund by direct deposit, and you can get that cash back from the feds in as little as two weeks.
Just know that, if you don’t get around to it by midnight Tuesday, it’s not going to cost you until April 2026.
Brian J. O’Connor is a personal finance columnist and author of “The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese.”
More: The deadline for filing your taxes this year is April 18 — not April 15. Here’s why.
Plus: Are you filing your taxes at the last minute? Take the MarketWatch Tax Quiz to see if you are prepared