Late tax payments & returns are subject to IRS penalties. The two main types of penalties that the IRS assesses for late taxes are:
1. Failure to File Penalty
The Failure to File penalty is charged if you file your return past the deadline. Normally, this penalty is 5% of unpaid taxes for each month beyond your filing deadline up to a maximum of 25% of your unpaid taxes due.
2. Failure to Pay Penalty
The Failure to Pay penalty is levied on all taxes due that are not paid by the filing deadline. This penalty is normally an interest charge of 0.5% per month based on your total unpaid taxes. This penalty can continue until it reaches 25% of your total unpaid taxes.
At least 90% of your expected taxes due must be paid by the mid-April filing deadline – even if you plan on filing taxes late via the automatic two-month extension. Otherwise, you may face a Failure to Pay penalty even if you file your return on time.
In many cases, we find that expats do not owe taxes due to foreign tax credit and foreign earned income exclusion. But just in case, it’s good to file in April or file an extension until October, to make sure you won’t have to pay penalties.
3. Other IRS Penalties
There are a few other IRS penalties you may incur when paying your taxes late, such as an Accuracy-Related penalty, which charges you for not reporting your income or other information correctly. If you don’t pay estimated taxes throughout the year, you can also receive a penalty for not paying your estimated taxes on time or in full.
Know more about the consequences of filing late by reading this article: What Happens When You File Late Taxes as a US Expat
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