Have you ever wondered what would happen if you simply did not file your income tax return? While few people would flout tax laws, some choose to do so. Under a new law passed by the Obama administration, the failure to file penalty will go up as of the end of the 2015 calendar year.
The New Penalties
Until this year, failure to file income taxes (or an extension) within 60 days of April 15 meant you had to pay $135 or 100% of the taxes due, which ever was smaller. Now, people who do not file will have a minimum penalty of $205 or 100% of the taxes owed. However, this is a minimum penalty. The actual penalty could be much higher, as it is 5% of the taxes owed every month. The upper limit is 25% of taxes owed.
However, under the new law these penalties may be waived if the IRS deems that there is a reasonable excuse for late taxes. Reasonable causes could include medical emergencies and similar cases in which it is literally impossible to file taxes on time. Because the new penalties are quite high, people should not try to test this.
Failure to Pay Vs Failure to File Penalty
Some people may confuse the issue of failing to file one’s taxes with that of failing to pay on time. These are two separate matters with two different sets of consequences. Failure to pay penalties are only 0.5% of the taxes owed, or a tenth of the penalty for simply not filing. Even if you are unsure about how you will pay an unexpected tax bill, it is important to file your tax return.
There is rarely a good reason to simply not file taxes. The new penalties are part of a cluster of changes coming down on taxpayers who fail to comply with the system. If you have any questions about your taxes, it is important to meet with a qualified accountant to ensure that you stay on the right side of tax law.
