*With Tax Day looming on April 15, millions of Americans are racing to submit their returns. Filing late, especially if you owe, can trigger costly penalties and compounding interest that grow by the day.
As Newsweek reports, the IRS charges two primary penalties: failure-to-file and failure-to-pay. Miss the deadline without an approved extension, and the failure-to-file penalty is a steep 5% per month, up to 25%. Owe money and don’t pay? Add another 0.5% monthly penalty, though that drops to 0.25% if you’re on a payment plan.
Interest, currently at 7%, begins accruing the day after the deadline and is compounded daily. Unlike penalties, interest isn’t typically waivable unless the penalty is also removed.
“You can avoid a penalty by filing and paying your tax by the due date,” the IRS states. Filing Form 4868 provides an automatic extension to file until October 15, but not to pay. Estimated taxes still need to be paid by April 15.
Experts stress action over avoidance. “Bottom line—file something. Pay something. Don’t wait,” said Kevin Thompson, CEO of 9i Capital Group. Even a partial payment helps limit the damage.
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Alex Beene, a financial literacy instructor, noted that while the penalties may not seem overwhelming at first, they can “eat into your refund.”
Michael Ryan of MichaelRyanMoney.com added, “Extensions are your friend,” but warned that they only buy time to file, not to pay.
Taxpayers can use IRS Free File or e-file with commercial software. Direct deposit ensures the fastest refunds. And for those who can’t pay in full, IRS payment plans are available.
One last incentive to file: refunds. If the IRS owes you, there’s no penalty for being late, but don’t wait forever. Refunds must be claimed within three years. “After that,” Ryan said, “your money becomes a ‘donation’ to the U.S. Treasury.”
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