How Late Payment of Taxes Affects You

Every month your taxes remain unpaid after the April 15 deadline, you pay a penalty of 0.5%. In most cases, the penalty doesn’t go beyond 0.5%, but it can reach a maximum of 25% per month. Along with the penalty, you are also charged interest on the unpaid taxes at the federal short-term rate, plus 3 percent for a year. This is compounded daily. Penalties and interest increase the total taxes owed each month until they are paid or a permanent resolution achieved.

As long as you have taxes due for payment, the IRS will eventually contact you for collection. Even if you did not file a tax return, the IRS will file a Substitute for Return (SFR) to calculate how much you owe. After they determine your tax liability, they begin collection action. If you do not respond to their notices, the agency can place a levy on wages or even your bank accounts.

If you could not pay your taxes due to a reasonable cause such as a personal tragedy (divorce, theft, natural disaster, illness), then you can request the IRS to forgive the penalties charged on your back taxes.

Early resolution of back taxes is to your advantage, as it reduces the penalties and interest charged. There are various IRS payment plans that allow a comfortable resolution for taxpayers of different financial means. Instead of letting your tax debt increase over time, resolve it early to pay less in penalties and interest.