The federal income tax deadline has passed for most individual taxpayers. If you missed the deadline and haven’t filed for an extension for your client’s return, or you have a client come to you who missed the deadline, here’s what you should know.
If your client, an individual taxpayer, is owed a refund, there’s no penalty for filing late. On the other hand, tax owed and not paid by May 17, 2021, is subject to penalties and interest.
Anyone who didn’t file and owes tax should file a return as soon as they can and pay as much as possible to reduce penalties and interest. Tax professionals can take this opportunity to review their clients’ payment options, including setting up a payment plan, setting up an offer in compromise (may require additional experience or education) and even request a temporary delay of collection until your client’s financial situation improves, if that’s part of the issue.
Some of your clients may have extra time to file their tax returns and pay any taxes due. This includes some disaster victims, taxpayers living overseas, certain military service members and eligible support personnel in combat zones.
Filing soon is very important because the late-filing and late-payment penalties on unpaid taxes add up quickly. However, in some cases, a taxpayer filing after the deadline may qualify for penalty relief. For those charged a penalty, your client should contact the IRS by calling the number on their notice and explain why they couldn’t file and pay on time. If you and your client would like you to speak with the IRS on behalf of your client, tax pros will need to file a Form 2848.
Taxpayers who have a history of filing and paying on time often qualify for administrative penalty relief. A taxpayer usually qualifies if they have filed and paid timely for the past three years and meet other requirements. For details, taxpayers should visit the first-time penalty abatement page on IRS.gov.
NATP has additional education on first-time penalty abatement at our TaxCon virtual education event in August 2021. Members receive a discount on registration.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.