Every year, two main reasons prevent 5% of US taxpayers from filing their taxes: they find the tax prep too complicated or they don’t want to pay income taxes.
The IRS website says the deadline for filing and paying taxes for 2023 is April 18, 2023. This also applies to first quarter estimated tax payments for self-employed people and others without tax withholding. To get an extension, file Form 4868 by April 18, 2023, but pay your tax by the due date or face interest and penalties.
Filing your taxes is an essential duty that you should not neglect or postpone. If you don’t file your taxes by the deadline or at all, you could face severe consequences from the IRS. Here are some of the possible outcomes of not filing your taxes on time.
- The IRS will charge you penalties and interest if you owe tax and don’t file by the due date. The failure-to-file penalty is 5% of the unpaid tax per month or part of a month, up to 25%. You also pay a minimum penalty of $435 or 100% of the unpaid tax, whichever is less, if your return is over 60 days late. Plus, you pay interest on the unpaid tax from the due date until you pay it. The interest rate changes quarterly and is now 3% per year, compounded daily.
- You could lose your refund or tax credits. If you are eligible for a refund or tax credits, such as the earned income tax credit or the child tax credit, you will not receive them until you file your return. However, you have three years from the due date of the original return to claim your refund or credits. If you don’t file within that time frame, you will forfeit your refund or credits to the IRS.
- You could face collection actions or legal consequences. If you don’t file your taxes and you owe a large amount of money, the IRS may take collection actions against you, such as placing a lien on your property, levying your bank account, garnishing your wages, or seizing your assets. The IRS may also refer your case to the Department of Justice for criminal prosecution. You could be charged with a misdemeanour or a felony for wilfully failing to file your taxes, which could result in fines and imprisonment.
How to Avoid or Reduce the Consequences of Not Filing Your Taxes
The best way to avoid or reduce the consequences of not filing your taxes is to file them as soon as possible. Even if you can’t pay the full amount of tax that you owe, you should still file your return and pay as much as you can. This will reduce the failure-to-file penalty and interest charges that you will incur.
You can also request an extension of time to file your return by filing Form 4868 by the original due date. However, this will not extend the time to pay your tax, so you will still have to pay interest and possibly a failure-to-pay penalty if you don’t pay by the due date.
If you can’t afford to pay your tax in full, you may qualify for one of the following options:
An instalment agreement
This allows you to pay your tax in monthly instalments over a period of up to six years. You will have to pay interest and a setup fee, but you may be able to avoid or reduce some of the penalties. You can apply for an instalment agreement online, by phone, by mail, or in person.
An offer in compromise
This allows you to settle your tax debt for less than the full amount that you owe. To qualify for an offer in compromise, you need to demonstrate that paying your tax in full would cause financial hardship and that you are unable to do so. The IRS will charge you an application fee and a percentage of your offer amount. You have the option to apply for an offer in compromise online, by mail, or in person.
A hardship status
This allows you to temporarily suspend collection actions against you if you are experiencing economic hardship and cannot pay your tax. You will have to provide financial information and documentation to prove your hardship. You will still have to pay interest and penalties on your tax debt until it is paid in full.
How to file Form 4868
Form 4868 is the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You can use this form to request an additional six months to file your federal income tax return. However, you still have to pay your tax by the original due date to avoid interest and penalties.
There are three ways to file Form 4868:
- You can file Form 4868 electronically by accessing IRS e-file using your tax software or by using a tax professional who uses e-file. This is the fastest and easiest way to file Form 4868. You will receive a confirmation that your extension request has been accepted.
- You can file a paper Form 4868 and enclose payment of your estimate of tax due (optional). You can download the form from the IRS website¹ or get it from your local IRS office or library. You have to mail the form to the IRS address that matches your state of residence. You can find the address on the form instructions or on the IRS website. You have to postmark the form by the original due date of your return.
- You can pay all or part of your estimate of tax due using a credit or debit card or another electronic payment method. You can do this online or by phone through one of the IRS-approved payment processors. You can find their contact information on the IRS website. When you pay, you will be asked to provide your personal information and indicate that you are paying for an extension. You will receive a confirmation number that you should keep for your records.
How do you fill out Form 4868?
Form 4868 has Four Parts:
- Part I: Identification. In this part, you have to enter your name, address, and social security number. If you are filing a joint return, you also have to enter your spouse’s name and social security number.
- Part II: Individual Income Tax. In this part, you have to enter the following information:
- – Line 1: Enter the total amount of tax that you expect to owe for 2023. You can use your 2022 tax return as a guide or use the tax tables or worksheets in the Form 1040 instructions.
- – Line 2: Enter the total amount of federal income tax that was withheld from your wages, salaries, pensions, etc. for 2023. You can find this information on your Form W-2, Form 1099, or other statements.
- – Line 3: Enter the total amount of other payments that you made for 2023. This includes estimated tax payments, excess social security tax withheld, credit for federal tax on fuels, etc.
- – Line 4: Add lines 2 and 3 and enter the result. This is the total amount of payments that you made for 2023.
- – Line 5: Subtract line 4 from line 1 and enter the result. This is the balance due for 2023. If this amount is zero or less, you do not need to file Form 4868.
- Part III: Credit Card Payment. In this part, you can choose to pay all or part of your balance due by credit or debit card. You have to provide your card information and the amount that you want to pay. You also have to include the convenience fee charged by the payment processor in your payment amount.
- Part IV: Signature. In this part, you have to sign and date the form. If you are filing a joint return, your spouse also has to sign and date the form.
If you need help with filing your taxes or resolving your tax debt, you may want to consult a tax professional, such as an accountant, an enrolled agent, or a tax attorney. They can help you prepare your return, negotiate with the IRS, and represent you in case of an audit or a lawsuit.