Here's What Happens When You Owe Money on Your Taxes and Don't File a Return on Time

Taxes are basically due on the same date every year -- April 15. Sometimes, the IRS will push back the tax-filing deadline by a day or two if April 15 falls out on a weekend or conflicts with Emancipation Day, a mid-April holiday recognized in Washington, D.C.

But for the most part, when it comes to the filing deadline, there really shouldn't be any surprises. Many folks have ample opportunity to get their taxes completed in a timely manner.

But what if you're late with your tax return? Here's some good news: If you're due a refund, the IRS won't care one bit. You'll delay your refund from hitting your bank account, but that's a self-imposed penalty -- not an IRS one. (For the record, you actually get three full years from a given return's filing deadline to claim a refund. So for 2023 taxes, you have until April 15, 2027 to get your money.)

But when you owe money on your taxes and you don't file a return on time, you could face serious IRS penalties. Thankfully, though, there's a pretty easy way to avoid that situation.

You could get slapped with a major penalty

Let's say you underpaid your 2023 taxes by $2,000. In that case, the IRS won't charge you interest or penalties as long as you submit that sum -- and your 2023 tax return -- by April 15 this year. But if you're late paying that money, you'll face a failure-to-pay penalty equaling 0.5% of that $2,000 for each month or partial month you're late, up to a total of 25%, plus interest.

And if you think that sounds bad, get ready for this: If you're late with your tax return in that scenario, you'll face a failure-to-file penalty. And that one is way worse than the penalty for failing to pay on time, as it amounts to 5% of your unpaid tax bill per month or partial month you're late, up to a total of 25%. (There are no interest charges associated with this penalty since it relates to tardiness with a return, not with a payment.)

So let's break things down. You owe $2,000 to the IRS and get your tax payment and return in a week late. For the late payment, you're losing $10 in penalty form plus some interest. For the late tax return, you're losing $100. That's a harsher blow.

How to avoid a penalty for filing your taxes late

If you want to avoid a failure-to-file penalty, don't be late with your tax return. And if that's unavoidable, request a tax extension by April 15. That won't give you extra time to pay your tax bill, but it'll give you six more months to complete your tax return.

So let's say you owe $2,000 from 2023, get an extension, and file your return and pay your bill on May 16. You won't be charged $100 in the form of a failure-to-file penalty. But you will owe $20 plus interest for paying late.

Of course, all of this underscores the importance of starting your taxes early in the season. If it's too late to do that this year, aim to do so next year. Also, line up tax help ahead of the season so you don't run into issues with being late due to your accountant not being available.

In fact, if you sign up to work with a tax professional, they'll often send out a gentle reminder early on in the tax-filing season to get your paperwork in as soon as possible. So that's a good way to stay on track.