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If you’re worried about missing the tax deadline, it can be stressful. What will happen? How much do I have to pay? Will the IRS take me to jail?
I wanted some concrete answers about what exactly happens if you file late. So I asked ChatGPT a simple question: What exactly happens if you file your taxes late?
What it says (divided into five key areas).
1. Fines increase rapidly for non-filing
IRS “Failure to File” Penalty A fee of 5% of your unpaid taxes is charged per month, up to a maximum of 25%. If you owe taxes and you miss the tax filing deadline, the penalties add up quickly.
For example; If you owe the IRS $10,000 and you miss the filing deadline, you’ll have to pay a $500 penalty after just one month. If you defer it for the next four months, you may have to pay $2,500 in fines alone.
Comment: The penalty for late filing is much higher than the penalty for late payment. So even if you aren’t able to pay, filing on time may save you some money.
2. Interest starts accruing immediately
While the punishments are harsh, IRS also charges interest On unpaid taxes. If you owe the IRS money and you don’t pay or file on time, interest starts accruing daily from the due date until your balance is paid in full.
Ouch!
Interest is charged on taxes owed, but this penalty may also apply to the balance. This can get expensive quickly.
3. You may lose your refund
Here’s something most people don’t know: If you’re owed a refund, there’s no penalty for filing taxes late. But, there is a time limit to claim your refund.
The IRS gives you three years From the original due date to file your return and claim your refund. If you fail to file your taxes by that deadline, your money becomes the property of the U.S. Treasury.
4. Collection activities may increase
If you don’t file your tax return and neglect to pay the IRS for too long, the IRS will begin collection efforts.
The IRS has almost unlimited power to collect money From you, including tax liens, levies on your bank accounts or even salary payments directly from your pay cheque. And sometimes, unpaid IRS tax debt can affect your ability to get a loan or refinance your home.
Collection typically does not begin until the IRS sends several notices.
5. Payment plans are usually an option
Chat GPT was quick to point out that the IRS can actually be reasonable, and offer payment plans to help you get caught up on your tax debts.
Installment agreements allow you to make payments over time based on your income and the amount owed. In some cases, taxpayers may also be eligible for penalty relief or a offer in agreement To settle your IRS debt for less than the amount you owe.
But it is important to file your return on time, even if you owe money. These options are more readily available to those who file on time.
A quick word of caution about AI advice
ChatGPT can provide general information, but it is not a tax professional. Tax rules change, and your situation may be unique. Before making decisions about late filing, payment plans or penalties, consider consulting a certified public accountant (CPA), enrolled agent or qualified tax advisor.