What Happens If You File Taxes Late + Tips to Reduce Penalties

Did you miss the last tax filing deadline? If you did, don’t panic, it's not the end of the world. Many small business owners and freelancers file their taxes late every year, which can expose them to penalties and increased IRS scrutiny. While dealing with the consequences of filing late isn't fun, there's good news: there are tactics you can use to minimize penalties and get back in good standing with the IRS.

In this guide for 2026, we’ll explain what happens when you file taxes late, how the IRS calculates penalties, and what you can do right now to reduce or eliminate the penalties the IRS intends to apply to your business.  

Consequences of Filing Late Taxes

You may be wondering how to avoid tax penalties when filing late, which can be challenging. You should also know the potential consequences your small business might face if you file your taxes late. The IRS can be lenient if this is a first-time offense or a rare occurrence; however, repeat offenders are typically not as fortunate. 

1. IRS Penalties and Interest (2026)

Failing to submit your taxes on time will open you up to penalties and interest. What to know for 2026: 

• Failure-to-file penalty: 5% of unpaid taxes per month, with 25% as the maximum penalty.

• Failure-to-pay penalty: 0.5% per month on unpaid balance (up to 25%).

• Interest rate (2026): 8% annually, compounded daily. Note that interest will accrue during tax payment plans. 

For example, if you owe $5,000 and file three months late, you could face over $900 in combined penalties and interest. As this example illustrates, it's best to pay on time or as soon as possible after missing a tax deadline, as failing to do so can be costly.  

2. Reduced Refund or Increased Tax Liability

If you're entitled to a tax refund, filing late can cause a delay in processing or eliminate that refund completely. You have three years to file your return and collect your refund. After that, the IRS keeps the money.

In some cases, late filing can even result in a reduced refund due to penalties and interest. Conversely, if you owe taxes, filing late can lead to increased tax liability as penalties and interest accumulate. Late filing can also increase the debt for taxpayers who owe money. 

3. Loss of Tax Benefits

Certain tax benefits, such as the Earned Income Tax Credit or the Child Tax Credit, may be reduced or lost if you file your taxes late. Additionally, if you're self-employed and fail to file your taxes on time, you could lose your ability to claim certain self-employed tax deductions, such as the home office deduction or the deduction for self-employed health insurance premiums.

• Earned Income Tax Credit (EITC)

• Child Tax Credit (CTC)

• Self-employed deductions (home office, health insurance, retirement contributions)

Remember, filing late can delay or disqualify these valuable deductions.

4. Difficulty Obtaining Loans or Credit

Many lenders require current federal income tax returns for loan or credit applications. Missing returns can make financing difficult and may be viewed as a sign of financial irresponsibility. 

5. IRS Collection Actions

In extreme cases, the IRS may take collection actions against taxpayers who fail to file their taxes or pay the tax they owe.

For 2026, IRS notices are sent automatically via both traditional mail and online. Consequences for prolonged non-filing include:

• Wage garnishment

• Bank levies

• Liens

Filing before the IRS contacts you can significantly reduce penalties.

Strategies to Reduce the IRS Late Filing Penalty

The consequences of filing late are wide-ranging and can be intimidating, but they all have one thing in common: the quicker you address the penalties and consequences, the better. Use the following strategies to promote a speedy resolution to your late filing issues. 

1. File Your Taxes as Soon as Possible

If you've missed the tax filing deadline, you must file your business taxes as soon as possible to avoid the penalties and interest from accumulating. Filing quickly tends to stop the “failure-to-file” penalty clock. The IRS will generally work with taxpayers who try to correct their late filing status.

Even if you can’t pay in full, filing prevents larger penalties.

2. Request a Filing Extension (Form 4868)

If you cannot file your taxes by the deadline, you can file a tax extension for 2026 by submitting IRS Form 4868. This will give you an additional six months to file your tax return, until October 15, 2026. Small business owners must remember a tax filing extension only applies to the filing deadline, not the payment deadline. You'll still need to pay any taxes owed by the original due date, April 15, 2026, to avoid the failure-to-pay penalty and interest charges from piling up. Learn more about the benefits of filing a tax extension.

Avoid issues when you trust 1-800Accountant to file your extension online in minutes.

3. Set Up a Payment Plan (Installment Agreement)

If you cannot pay the tax you owe in full, you can apply for an IRS Payment Plan. This allows you to make monthly payments on your tax liability over an extended period. Short-term plans typically last 120 days, while long-term plans vary in duration.

While this won't eliminate penalties and interest, setting up a plan can make the debt manageable and prevent more aggressive collection actions.

4. Request Penalty Abatement

First-time offenders typically have more room to work with the IRS than those who repeat the offense. Request a first-time abatement if you've filed all returns in prior years and paid or arranged to pay any tax due.

File this request online via an IRS account or by calling 1-800-829-1040.

5. Work with a Tax Professional

If you’re behind on taxes, professional help can mean the difference between small fines and severe penalties.

When you work with 1-800Accountant, America's leading virtual accounting firm, our deep expertise in late filing and penalty negotiation will yield the best result. 

How 1-800Accountant Can Help Your Small Business 

Late tax filing can result in penalties, interest, and additional complications for your small business. You can avoid unpleasantness and ensure your taxes are filed accurately and on time by partnering with the small business tax experts at 1-800Accountant.

Our team of licensed CPAs, EAs, and tax professionals helps you file back taxes accurately, request penalty relief, and establish payment plans — so you can focus on your business instead of your debt.

Talk to a tax expert to learn more about:

• Late and back tax filing

• IRS penalty abatement requests

• Payment plan setup

• Small business tax prep and advisory

• Audit defense

Frequently Asked Questions (FAQs)

1. What happens if I never file my taxes?
There are consequences if you never file your taxes. The IRS can file a substitute return, assess penalties, and begin collection actions.

2. Can I still get a refund if I file late?
Yes, you can still receive a refund, even if you file late. However, only if you file within three years of the original deadline.

3. How long does it take the IRS to process late returns?
Typically, IRS processing times are 6–12 weeks for paper filings, but faster with e-file.

4. Can filing late trigger an audit?
No, filing late isn't an immediate audit trigger, but inconsistencies can draw scrutiny.

5. What if I can’t afford to pay what I owe?
The IRS understands you might not be able to pay your entire tax bill. In this instance, you can request an installment agreement or apply for an Offer in Compromise.