June 09, 2021

Due to the COVID-19 pandemic, even though it is on its decline, the IRS moved the tax return due date back a month to May 17th. All taxpayers needed to hit this deadline. Those that did not may need to pay the IRS fees and penalties stemming from their late return and payments. However, what if the IRS owes you a refund? What should you do if you missed the deadline and owe the government money?

Knowing how to proceed is incredibly important, as you need to act immediately, before the IRS reaches out to you. So, here’s what you should do, depending on whether or not you owe tax money.

Are You Eligible for a Tax Refund?

If you answered “yes” to this question, then you’re in luck! The IRS electronically accepts 2020 tax returns through October 15, 2021, and you can still use their Free File providers if you are eligible. Even better, you do not owe anything in fees or penalties for filing later, so you will receive the full amount of your return, as long as you do not owe back taxes or have an outstanding debt with specific government agencies. To put it simply, if the IRS owes you a tax refund, now is the time get your return filed, so you can receive the funds that are due to you.

Do You Owe the IRS Money?

On the other hand, if you owe money to the IRS and are late in filing your return, things are a bit more complicated. Not filing your return on time, especially without a payment attached, means that you are subject to penalties and fines, as well as interest. The longer that you go without filing, the more these add up. Also, if you owe the IRS money and put off paying it for any particular reason, they are likely to go use all possible measures to collect those funds, including steps like garnishing your wages and bank account, as well as suspending your driver’s license and passport.

However, before things reach those stages, you have some time to file your late 2020 tax return, as they will electronically accept returns and payments through October 15, 2021. Also, if you fit into a certain group of people, you may not be subjected to those fines and penalties.

Are You Allowed Extra Time to File?

Depending on the circumstances, you may have additional time to file your tax return. For example, those who live in Presidentially-declared disaster zones, such as those hit by hurricanes, flooding, or forest fires, have until the last day of the IRS extension period to file their returns without being penalized, even if they owe the IRS money. This means that they can file up to October 15, 2021.

In addition, U.S. residents living overseas who qualify for filing a tax return, have an automatic extension of two months past the filing deadline. They have until July 17, 2021 in order to get their returns in without being penalized. However, they need to include a statement with their return explaining why they qualify for the extension in order to have those fees and penalties waived.

Other people who have extra time to file their tax return are members of the military and eligible support personnel who are located in a combat zone. They have 180 days to file, plus the additional time served in the combat zone. For example, if the soldier or their spouse went into a combat zone on March 1st and the filing deadline was April 15th, they have 180 days after returning to file the return, plus an extra 46 days of their time spent in the combat zone (March 1 – April 15). Those who qualify for this extension have their fees and penalties waived should they owe taxes to the IRS, as long as they get their returns and payments submitted before the extension period is up. There are many other ways in which currently active members of the military can receive some relief on their taxes owed. If you have any questions in this, please check with a professional tax preparer.

What About Penalties? Can They Be Waived?

Not only are there certain qualifications for receiving an automatic extension on your filing date, but some penalties and fees can be waived depending on the circumstances. While not everyone will qualify, the administrative penalty relief option can save you from having to pay extra money beyond what you owe to the IRS.

The administrative penalty relief option falls under the First Time Abatement Relief option. If you have no penalties accrued from the previous three tax years and have submitted those returns on time, as well as turned your current one either by your extension deadline or before you request relief, and have either paid all previous taxes due, as well as the current amount, or are in a payment plan with the IRS, then you may qualify for this option. You will need to submit your current return and payment, as well as ensure that all of your other tax returns were in on time with amounts due paid, before requesting relief under the First Time Abatement program.

What Exactly Are the Fees and Penalties for Filing Late?

If you haven’t yet submitted your 2020 tax return, owe the IRS money, and do not qualify for any of the automatic extensions or the First Time Abatement Relief option, then penalties and fees will accrue on your account. For every month that you do not file a tax return with the attached required payment, you will be charged 5% up to a total of 25% of the amount owed. This means that in five months, you will owe the IRS an additional 25% in back taxes. This is called the Failure to File penalty.

In addition to that penalty, your unpaid taxes will also be subject to another penalty, called the Failure to Pay penalty. Under this penalty structure, the IRS charges you 0.5% of the amount due for each month that you owe them money, up to 25% of that total amount due. However, every month that both penalties are owed the Failure to Pay penalty amount goes against the Failure to File penalty, shrinking it down and making things just a little easier.

With that said, any amounts owed to IRS that have not yet been paid are still subject to a fine of 3% interest. Even if you have submitted your return (albeit late and past the May 17th deadline), if you have not paid the IRS what you owe them, then you will be charged this amount of interest.

As you can see, the penalties and fees can really add up, especially once you consider the interest that the IRS charges. All of these are very good reasons as to why you need to get your late 2020 tax return submitted as soon as possible. Otherwise, you will end up owing much more than you originally did, thanks to everything that gets added on top of that amount.

What Are My Payment Options?

After submitting your 2020 tax return, you have several options to pay the IRS what you owe them. You can either send them a check with your return if you submit everything by mail instead of electronically. However, if you prefer an electronic method of filing, you can pay any amounts owed online through the IRS website. They accept electronic payments from debit or credit cards, as well as via direct bank transfers. You can even set up a direct payment when you e-file your return. On top of that, the IRS also accepts direct bank wires, money orders, and even cash. Remember that when paying cash, you will need to go to your local IRS office in person. Also, if you cannot pay the full amount at once, you can set up a payment plan with the IRS. This involved allowing them to take the amounts due monthly from your bank account.

Who Can I Ask If I Have Questions?

Not submitting your tax return on time can lead to a number of different situations. Whether you think that you may qualify for an automatic extension or want to set one up with the IRS, check with your local tax preparer. They can answer any questions that you may have and guide you through the process to avoid any unnecessary penalties and fees.

Contact Us Today

If you have not yet filed your 2020 tax return and are worried about being charged interest, fees, and penalties by the IRS, then reach out to the tax advisors at Enterprise Consultants Group. We can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.

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