• If no tax is due, or if the taxpayer is due a refund, there is no penalty for failure to file a tax return.
    • However, if a taxpayer with a filing requirement fails to file, the IRS may hold up refunds from following years until the taxpayer is current with their tax filings.

Penalties

  • The federal penalties and interest charges if taxes are owed are: 
    • Failure to file penalty: 5% per month of the unpaid tax, for up to five months.
      • Reduced by the amount of the “failure to pay” penalty (see below).
      • However, if the return is filed more than 60 days after the due date, the minimum penalty is $435, for tax year 2022, or the full amount of the tax due, whichever is less. 
      • A taxpayer can submit Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship (not available on TaxSlayer). If the application is approved, the IRS waives the late penalty charges for up to six months. 
    • Penalty for late payment (“failure to pay”): The penalty is generally 0.5% per month of the taxpayer’s unpaid tax, up to a maximum penalty of 25% of the unpaid tax.
      • Note: If both the failure to file and late payment penalties apply, the maximum amount charged for the two penalties is 5% per month.
    • Interest on the amount past due (“underpayment”); [see Unable To Pay – Federal: Pay Within 6 Months 2 pages prior].
  • Penalties for failure to file on time, and failure to pay, can be waived under certain circumstances, under the IRS first time penalty abatement program. For details, see the Prior Year Returns section, page 134. 
  • Note for CA returns: The California penalties and interest charges if taxes are owed are:
    • Late filing penalty: For TY2024, the penalty is 8% of the unpaid tax due for every month that the return is late, up to a maximum penalty of 25% of the unpaid tax.
      • However, if the tax return is filed more than 60 days late, the minimum penalty for late filing is $135 or 100 percent of the unpaid tax, whichever is less.
    • Underpayment penalty: The penalty is 8% of the unpaid tax plus 1/2 to 1% each month, to a maximum of 25 percent of the total unpaid tax. 
    • Interest from the original due date of the return to the date that payment is received.
      • The interest rate varies; it is compounded daily and the rate is adjusted every six months.
      • The CA 2024 interest rate is 7% for the first 6 months, 8% for the last 6 months.
  • Note for CA returns: In 2022, California enacted a late-filing penalty-abatement program for individuals beginning with tax year 2022. This can be used once in a lifetime. Consider the penalty size before requesting abatement.

Deadlines for Claiming Refunds

  • For federal taxes, the deadline for claiming refunds is three years from the date the return was due.
  • Note for CA returns: The deadline for claiming CA refunds is four years from the return’s due date.
    • Note: Effective with the 2022 tax season, returns for four prior years are in-scope.

Prolonged Failure to File and Pay Taxes

  • Unlike the three-year deadline for refunds (four-year for CA), there’s no limit to how far back the IRS can go in assessing taxes for non-filed returns where taxes were due.
  • Repeated failures to file could result in criminal charges, with a maximum $25,000 fine and one year in prison for each year of non-filing.

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