Filing Taxes Late: Will This Be an Option in 2021?

January 1, 2021

Given the financial hardships that have occurred in the last year due to the coronavirus, many people are wondering about filing taxes late in 2021. They want to know if they will be able to file their taxes later than the normal deadline of April 15 because they have struggled to save enough money to pay what they owe. Not much is known yet about how the federal government will handle taxes this year, but here’s what we do know.

Filing Taxes Late in 2021

Filing Deadline for 2021

Currently, the deadline to file tax returns in 2021 is still April 15, 2021. There has been no mention of an extension of this deadline by the federal government as yet. Even if you can’t pay what you owe, it is important to still meet the filing deadline and then work out a payment plan or other solution later. In many instances, late filing penalties are higher than late payment penalties, so you still want to file on time.

Extension Request Deadline for 2021

Tax filing extension requests must also be filed by April 15, 2021, which means you will have an additional six months (until October 15, 2021) to file your actual returns. However, late payment fees and interest still apply if you owe taxes. You should only apply for an extension if you’re missing information to file by April 15, you’ll be out of town during the April filing period, or you’ve been unable to schedule tax help by April 15.

Many people file an extension because they can’t pay what they owe to the government, but this isn’t a good use of the extension provision. You will still owe the same taxes in October as you do in April, but you’ll also have to pay late fees and interest, which means you’ll actually owe more. If you expect to get a return on your taxes, an extension won’t hurt you, but it’s still better to file on time if possible.

Extended Filing Deadline for 2021

If you request a filing extension in 2021 by April 15, 2021, you will have until the extended filing deadline of October 15, 2021 to file your taxes. This is the last day that tax returns will be considered on time for your 2020 tax return. As mentioned before, you’ll still be responsible for any tax you owe, plus late penalties and interest. If you’re unable to pay in full by this date, a payment plan may be necessary.

Filing Deadline for U.S. Citizens Living Abroad for 2021

For U.S. citizens who are not currently living in the country, you have until September 15, 2021 to file your 2020 tax returns. You can also request a four-month extension by September 15, as well, which would give you until January 15, 2022 to file your tax return for 2020. As mentioned above with regular extensions, this is not recommended unless you are unable to meet the original deadline for reasons other than not being able to pay.

Failure-to-File Penalties

If you do not file your 2020 tax returns or request an extension by April 15, 2021, you will be assessed a penalty that is 5% of your unpaid taxes for each month your tax remains unpaid. Additionally, if you owe taxes and do not pay or arrange a payment plan, you’ll be assessed an additional 0.5% of the amount owed for each month you do not pay. The failure-to-file penalty will max out at 22.5% of what you owe.

However, the failure-to-pay penalty has a cap of 25%, which means you could owe as much as 47.5% of what you owe in penalties if you max out both the failure-to-file and failure-to-pay percentages. Additionally, you will also owe the federal government interest on the outstanding tax balance, which is equal to the federal short-term rate plus 3%. The short-term rate is adjusted about once every three months. At the end of 2019, the short term rate was 1.67%.

Late Payment Options

Payment Plans/Installment Agreements

Most people who cannot pay their taxes in full will qualify for a payment plan, which is also referred to as an installment agreement. If you believe you will be able to pay all of what you owe in an extended time frame, an installment agreement is the best option because it is the easiest tax relief program the government offers. You will need to pay a user fee if you request a long-term payment plan (over 120 days).

Short-term payment plans do not require a user fee, but you’ll still be responsible for late fees and interest until your balance is paid in full. Moreover, if you pay with a debit or credit card, there are fees for this as well, which vary based on how much you are paying. To avoid card fees, link your bank account with your IRS account and pay directly from that account. Auto-pay is also recommended so you don’t miss a payment.

Offers in Compromise

This is a much more difficult agreement to get with the federal government, but if you’re not able to pay your tax debt, or doing so would cause a financial hardship, you may qualify for an offer in compromise (OIC) that allows you to pay less than you owe. Fewer than 50% of the applications for OICs are accepted since the government wants to get all the money it is owed and most people can pay using an installment agreement.

You must pay a $205 application fee for an OIC, which is non-refundable even if your application is denied. So, you could end up owing the full amount of tax plus you will have lost an extra $205 for just applying. Additionally, you must be current on your tax returns to qualify for an OIC, so staying on top of filing your taxes is important if you want to apply for this type of tax debt relief.

Currently-Not-Collectible Status

In the event that you’re not able to pay your back taxes and you’re struggling to also pay your living expenses, you can apply to the IRS for currently-not-collectible status. This is a temporary measure that will delay tax collection until your financial situation improves. The IRS will likely ask you to fill out a Collection Information Statement to prove that you’re really not able to pay and that even monthly payments would be a hardship.

Again, this option is temporary and the IRS will review your financial situation every year to see if they’re able to collect your debt. You are still susceptible to a federal tax lien, as this solution does not make your debt disappear. It only allows you to defer payment until you’re better off financially. However, if you are unable to make payments or qualify for an OIC, this may be your best option, especially if your income fell in 2020.

Despite the ongoing COVID-19 pandemic and the fact that the tax filing deadline for 2020 was extended, the IRS has not issued any guidance for filing late taxes in 2021. Therefore, your tax returns or extension request are still due by April 15, 2021. Contact Geaux Tax Resolution today if you’re struggling with tax debt or need further help with any tax issue.