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File the Return on Time Even If You Do Not Pay the Taxes Owed

One of the worst things you can do if you cannot afford to pay your taxes is to not file your tax return. You must file an income tax return, in general, if you are a U.S. citizen or resident alien, and your taxable income exceeds certain amounts.

For the tax year 2021 (taxes due April 15, 2022), you have to file your return if:

  • ● You are single and your taxable income exceeds $12,550.
  • ● You are the head of a household and your taxable income exceeds $18,800.
  • ● You are married filing as joint filers and your taxable income exceeds $25,100.
  • ● You are self-employed and earn over $400.

These dollar amounts go up each year.

April 15th is the deadline for most people to file individual income tax returns and pay any taxes owed. Filing extensions are available, but this does not extend your time to pay.

If you fail to file either an extension or your tax returns by April 15, and you owe taxes, the IRS will prepare a proposed tax return, called a “substitute for return,” which shows how much the IRS thinks you owe. You can dispute that determination by responding to the letter or filing a late return.

If you file late, the IRS will assess a late-filing penalty. If you owe taxes and are late in filing by sixty days, the penalty for late-filing is 5% of the taxes owed for each month or part of a month that your return is late, with a maximum penalty of up to 25% of the taxes owed. If your return is over sixty days late, the minimum penalty is the smaller of $135 or 100% of the tax owed.

Totally separate from any fee for filing late is the late-payment penalty. If you pay late, the IRS will assess a late-payment penalty. The penalty for late-payment is only a fraction of the larger penalty for not filing a return—it starts at only one half of 1% of the tax owed for each month late, up to a maximum of 25% of the taxes owed. You will also be assessed interest on the unpaid tax and penalty.

Getting an extension to file is also not the solution it might seem to be. Although the IRS will automatically give you a six-month extension if you request it, keep in mind that this is only an extension of time to file. It does not give you more time to pay the taxes you owe, and you will be charged both interest and probably a late-payment penalty during the time of the extension if you have not paid in full by April 15. As noted above, if you can’t pay the taxes due, it is a better idea to file the return, pay as much as you can, if anything, and then consider negotiating a payment option with the IRS (discussed below).