Unpaid Taxes Due For Previous Years

[user17581277999]

Hello,

I recently logged into my IRS online account and just realized that I did not file federal taxes for years 2022 and 2023 (I live in Texas so there is no state tax to file for those years). I completed those returns but apparently I never sent it in. I couldn't e-file so I had to file by mail, but must have forgotten to do so or the mail never made it or they have not been processed. I filed taxes in 2021 and recently filed my return by mail for 2024. 

In 2022, I owed $400 in taxes, but made a $100 payment. 

In 2023, I owed $523 in taxes, and I setup a payment plan to pay taxes by 10/12/2024, but I have no record of making any payments.

In 2024, I am getting a refund of $520.

Questions:

• How can I file my late 2022 and 2023 taxes?
• How much can I expect to pay in interest, fees, penalties?
• When I file, is my balance immediately due or can I setup a new payment plan?  If I don't have the money ready, any recommendation on how to best handle my balance?
• Anything else you may recommend?

Thank you!

[Cindy4]

1)  How can I file my late 2022 and 2023 taxes?

If you have already completed your 2022 and 2023 taxes and have a paper copy, you can sign, date, and send via certified USPS mail.  That way you'll have a record of the date that the IRS received it.  Be sure to keep a copy that shows the date and signature for yourself.   If you no longer have a completed copy to mail you can recreate it using TurboTax Desktop for prior years.


2)  How much can I expect to pay in interest, fees, penalties?  
    

The IRS will calculate your penalties and interest for you and send you a notice. The calculation will be based on:

The amount of the underpayment:

For 2022, your underpayment was $300 ($400 owed - $100 paid).

For 2023, your underpayment was $523.

The length of time the underpayment was outstanding: The penalty accrues monthly until you pay the full amount.

The penalty rate:

Failure-to-Pay Penalty: This is 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid. This penalty is capped at 25% of the unpaid tax.

Underpayment of Estimated Tax Penalty: This is calculated based on the IRS's quarterly interest rates, which are the federal short-term rate plus 3 percentage points. The rates for 2022 and 2023 changed throughout the year. For example, in 2023, the interest rate for underpayment of estimated taxes was as high as 8% for individuals.

Interest: The IRS will also charge interest on the unpaid tax and any penalties. The interest is compounded daily and the rate changes quarterly. For the last quarter of 2022, the underpayment rate was 6%, and it was 7% for the first three quarters of 2023, increasing to 8% for the last quarter of 2023.

3)  When I file, is my balance immediately due or can I setup a new payment plan?  If I don't have the money ready, any recommendation on how to best handle my balance?

If you can find an interest rate through a local bank or other financial institution that is better than what the IRS will charge, you may want to pay immediately.  Alternatively, you can set up an IRS payment plan.

4)  Anything else you may recommend?  You may want to consider filing for a request a  First-Time Abatement (FTA) or requesting a waiver due to Reasonable Cause.  To compare interest rates on personal loans, please consider Credit Karma.

I'm so glad to hear you're getting all caught up on filing your taxes!

Cindy

[user17581277999]

Thank you for the thorough response! Some follow up questions: 

"The IRS will calculate your penalties and interest for you and send you a notice."

• Does this happen after they receive and process my mailed-in 2022 and 2023 tax returns? Or at what point will they send the notice? 
• Should I wait for the notice to set up payment plan or pay off the balance or can I act sooner?

"Alternatively, you can set up an IRS payment plan."

• Am I correct to understand then that payment plans can be setup at any time, not just before the filing deadline or extension deadline for a given tax year? I would be setting up payment plans for 2022-2023.

"You may want to consider filing for a request a  First-Time Abatement (FTA) or requesting a waiver due to Reasonable Cause."

• Do I need or would you recommend assistance from a tax professional to file such a request or request a waiver? 

[SwapnaM]

As my colleague @Cindy4 mentioned, 

• For 2022: You owed $400 and paid $100. The penalties and interest will be calculated on the remaining $300 balance. The penalties will continue to accrue from April 2023 until you pay in full.

• For 2023: You owe $523. Penalties and interest will be calculated on this full amount, starting from April 2024. The payment plan you set up did not stop the penalties from accruing since no payments were made.

When will the IRS Send a Penalty and Interest Notice?

Yes, the IRS calculates and sends a notice after they receive and process your mailed-in tax returns. 

The IRS processes your returns, which can take several weeks or even months for paper filings.

Once processed, the IRS will compute the penalties for failure to file and failure to pay, along with the accrued interest, and send you a bill. This bill will detail the original tax due, the penalties, and the interest.

Should You Wait for the Notice to Act?

To Pay Sooner:Once you have calculated the tax you owe for 2022 and 2023, you can pay it immediately, even before the IRS sends you a bill. You can do this through the IRS website using IRS Direct Pay, or by mailing a check. Be sure to correctly specify the tax year and tax form (Form 1040) to ensure the payment is applied correctly. By paying before you get a notice, you can stop interest and penalties from accruing.

To Set Up a Payment Plan Sooner: You can set up a payment plan as soon as your returns have been processed and the balance is on your account. You can request penalty abatement more effectively once the IRS has assessed the penalty.

Can IRS Payment Plans Be Set Up After the Filing Deadline?

Yes — payment plans can be set up at any time, even after the filing deadline or for prior years. https://www.irs.gov/payments/payment-plans-installment-agreements 

Do I need professional assistance for a penalty waiver?

Not necessarily — you can request it yourself. You should consider hiring a tax professional if your case is not as clear-cut. It depends on your comfort level. https://www.irs.gov/payments/penalty-relief 

@user17581277999 Hope this helps!!