As the October 15, 2024, deadline for filing 2023 tax returns approaches, the Internal Revenue Service (IRS) is urging taxpayers not to wait until the last minute.
Even though some individuals have received an extension, it’s important to be aware of the potential penalties for failing to pay or file on time, as well as the average tax refunds issued so far.
Filing Deadline and Extensions
The standard deadline for filing your 2023 tax return was April 15, 2024. However, if you applied for and received an extension, you have until October 15, 2024, to file.
It’s crucial to remember that while the extension gives you more time to file your return, it does not extend the time to pay any taxes owed.
If you haven’t paid your taxes by April 15, 2024, you could face penalties and interest on the unpaid balance.
Average Tax Refunds for 2024
The IRS has reported that, as of May 10, 2024, the average tax refund for the year is $2,869. This amount reflects a 2% increase over the average refund issued in 2023.
For those who opted for direct deposit, the average refund was slightly higher, coming in at $2,960—a 3.1% increase from the previous year.
How Refunds Are Processed
While many taxpayers prefer the convenience and speed of direct deposit, some still choose to receive a paper check. Regardless of the method, the IRS processes refunds efficiently, but those who file earlier generally receive their refunds faster.
Consequences of Owing Taxes
Not all taxpayers will receive a refund. Some may owe money to the IRS, and failing to pay by the April 15 deadline can lead to significant financial consequences.
If you’re struggling to pay your tax bill, it’s important to act quickly to avoid falling into debt and incurring penalties.
IRS Penalties for Late Filing and Payment
If you were granted an extension but fail to file your tax return by the October 15 deadline, you could face penalties from the IRS.
Here’s a breakdown of the potential penalties:
Failure to File Penalty
The failure to file penalty is imposed when you do not submit your tax return by the extended deadline. This penalty is typically 5% of the unpaid taxes for each month (or part of a month) that the return is late, up to a maximum of 25% of your unpaid taxes.
For example, if you owe $1,000 in taxes, your penalty would start at $50 per month, increasing by that amount each month until you reach the maximum penalty of $250.
Failure to Pay Penalty
In addition to the failure to file penalty, you may also be subject to a failure to pay penalty if you did not pay the full amount of your taxes by April 15, 2024. This penalty is generally 0.5% of the unpaid taxes for each month (or part of a month) that the payment is late.
The failure to pay penalty continues to accumulate until the tax is paid in full, or until it reaches a maximum of 25% of the unpaid amount.
Combined Penalties
In some cases, taxpayers may be subject to both failure to file and failure to pay penalties. If this happens, the combined penalties can add up quickly, making it even more important to file and pay as soon as possible to minimize additional charges. However, the maximum combined penalty will not exceed 47.5% of your unpaid taxes.
Avoiding Penalties
The best way to avoid penalties is to file your tax return and pay any taxes owed by the deadline. If you’re unable to pay the full amount, consider setting up a payment plan with the IRS to avoid the failure to pay penalty.
The IRS also offers penalty relief in some cases, so it may be worth exploring if you’re facing financial hardship.
As the October 15, 2024, deadline draws closer, it’s important to take action if you haven’t already filed your 2023 tax return. With the average tax refund at nearly $2,900, there’s no reason to delay if you’re expecting a refund.
On the other hand, if you owe taxes, acting promptly can help you avoid costly penalties. Remember, the sooner you file and pay, the better off you’ll be financially.
FAQs
What is the average tax refund in 2024?
The average refund is $2,869, with direct deposit refunds averaging $2,960.
When is the extended tax filing deadline in 2024?
The extended deadline is October 15, 2024.
What is the failure to file penalty?
It’s 5% of unpaid taxes per month, up to a maximum of 25%.
What if I can’t pay my taxes by the deadline?
You may face a failure to pay penalty of 0.5% per month until the tax is paid.
Can penalties for late filing and payment be combined?
Yes, combined penalties can reach up to 47.5% of your unpaid taxes.
