What Happens if You File Taxes Late

Every year, right around the beginning of April, many people ask: “What happens if you file taxes late?” Filing your taxes after the deadline can bring serious consequences, including monetary penalties and the increased risk of an audit. If you’re worried you can’t make the deadline this year, don’t panic. In this article, we’ll outline the penalties and steps you can take to avoid or reduce them.

Tax Deadline

Most people think of April 15th as tax day, and indeed for individuals, that’s when traditional tax returns are due. But business owners must keep two dates in mind: 

• Individuals and C corporations: April 15th
• Partnerships, multi-member LLCs, and S corps: March 15th

What Is the Penalty for Filing Taxes Late?

The penalties for filing late are as complicated as the US tax system. We’ve outlined some of what is likely to happen below, but individual circumstances will vary. The best bet is to file on time whenever possible! 

Note: The section below does not apply to individuals owed a refund. For more information on tax penalties for individuals, review this page from the IRS.

Let’s begin with a general outline of penalties. These apply to individuals and entrepreneurs organized under “pass-through” entities where profit flows through as regular income tax. Different rules apply to S corps, C corps, multi-member LLCs, and partnerships; we’ll detail those below. For more information on the different types of businesses, check out our article on how to choose your small business entity.

It may seem odd that both the failure-to-file and failure-to-pay penalties are calculated based on a percent of unpaid taxes. But they’re separated into two categories because the IRS wants you to communicate with them by filing a return, regardless of whether you can pay at that time. 

1. Failure-to-File Penalty: The penalty for filing your return after the due date.

• 5% of the unpaid tax per month, capping at 25%.
• If filed over 60 days late, the minimum is either 100% of the unpaid tax or a flat rate (whichever is lower). The 2024 flat fee is $485. If your return is from a prior year, see IRS documentation for historical rates. 

2. Failure-to-Pay Penalty: This penalty occurs when you don’t pay your tax on time. It is separate from the failure to file penalty and applies to quarterly filing requirements as well as year-end taxes.

• 0.5% of the tax owed after the due date, per month, up to 25%.
• Ten days after you’re issued a final notice of intent to levy or seize property, the rate becomes 1% per month. This occurs after considerable communication from the IRS and only for the most substantial underpayments.
• If you’ve negotiated an installment plan with the IRS, the rate is 0.25% per month.

3. Failing to File and Failing to Pay: If you incur both penalties, they accumulate differently than if only one penalty is applied. 

• The late filing penalty accrues at 4.5% per month, capping at 22.5%.
• Rules for the failure-to-pay penalty are unchanged.
• Combined, the cap is 47.5%.

4. Interest Payments: The IRS charges interest on the unpaid tax due, compounded daily. 

• For taxpayers other than corporations, the interest rate is the federal short-term rate plus 3%.
• The short-term rate is determined every three months.
• Failure-to-file interest begins on the due date of the return.
• Failure-to-pay interest begins on the date of notice and demand but isn’t charged if paid within 21 calendar days of the notice (or within ten business days on bills larger than $100,000).