Why your tax return absolutely must be on time -- even if you can't pay on time

If you owe money to the IRS that you can't pay, you're probably pretty nervous with the tax deadline approaching. While you may be tempted to skip filing your taxes and hope the IRS doesn't notice you owe money, that's a really bad idea. Not only will the IRS likely fine you, but you'll face much harsher penalties for not filing your tax returns than you'd face for not paying the amount you owe.

RELATED: Check out the U.S. states where taxpayers pay the highest state income tax:

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States where Americans pay the highest in state income taxes
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States where Americans pay the highest in state income taxes

California

State income tax: 1% to 13.3% 

Maine

State income tax: 5.8% to 10.15%

Oregon

State income tax: 5% to 9.9%

Minnesota

State income tax: 5.35% to 9.85%

Iowa

State income tax: 0.36% to 8.98%

New Jersey

State income tax: 1.4% to 8.97%

Vermont

State income tax: 3.55% to 8.95%

Washington, DC

State income tax: 4% to 8.95%

New York

State income tax: 4% to 8.82%

Hawaii

State income tax: 1.4% to 8.25%

Wisconsin

State income tax: 4% to 7.65%

Idaho

State income tax: 1.6% to 7.4%

South Carolina

State income tax: 0% to 7%

Connecticut

State income tax: 3% to 6.99%

Arkansas

State income tax: 0.9% to 6.9%

Montana

State income tax: 1% to 6.9%

Nebraska

State income tax: 2.46% to 6.84%

Delaware

State income tax: 2.2% to 6.6%

West Virginia

State income tax: 3% to 6.5%

Georgia

State income tax: 1% to 6%

Kentucky

State income tax: 2% to 6%

Louisiana

State income tax: 2% to 6%

Missouri

State income tax: 1.5% to 6%

Rhode Island

State income tax: 3.75% to 5.99%

Maryland

State income tax: 2% to 5.75%

North Carolina

State income tax: 5.75%

Virginia

State income tax: 2% to 5.75%

Oklahoma

State income tax: 0.5% to 5.25%

Massachusetts

State income tax: 5.1%

Alabama

State income tax: 2% to 5%

Mississippi

State income tax: 3% to 5%

Utah

State income tax: 5%

Ohio

State income tax: 0.495% to 4.997%

New Mexico

State income tax: 1.7% to 4.9%

Colorado

State income tax: 4.63%

Kansas

State income tax: 2.7% to 4.6%

Arizona

State income tax: 2.59% to 4.54%

Michigan

State income tax: 4.25%

Illinois

State income tax: 3.75%

Indiana

State income tax: 3.3%

Pennsylvania

State income tax: 3.07%

North Dakota

State income tax: 1.1% to 2.9%

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When do you owe a penalty to the IRS?

If you don't file your taxes when the IRS owes you money, you won't be penalized financially. However, you need to file to obtain any refund. You have until 2021 to file your return and still claim a refund on your 2017 taxes.

If you owe money to the IRS, you need to file your tax returns and pay what you owe by April 17, 2018 for the 2017 tax year. If you can't file by the deadline, you can request an extension until October 15, 2018.

An extension on your time to file is not an extension on the time you have to pay what you owe. If you get a filing extension but don't pay your tax bill by April 18, you'll still face late-payment penalties in most cases. Penalties for failing to file your taxes and paying your taxes late are both charged in addition to any interest you owe on your unpaid tax balance.

The failure-to-file penalty is much higher

If you don't file your taxes when you owe money, you could be hit with not one, but two penalties imposed by the IRS: failure to file and failure to pay.

  • The failure-to-file penalty is equal to 5% of the taxes you owe for each part of a month you're late, up to a maximum of 25% of unpaid taxes. This means if you're two days late with filing and you owe $1,000 in taxes, you could be hit with a $50 penalty. If you're more than 60 days late, the minimum penalty is the lesser of $205 or 100% of the unpaid tax.
  • The failure-to-pay penalty is .5% of unpaid taxes for each part of a month you're late, up to 25% of unpaid taxes due. This is the penalty you're charged if you file on time but don't pay what you owe. However, if you request an extension to file and pay at least 90% of taxes owed, you may not be charged any failure-to-pay penalties as long as you pay the remaining 10% by the extended due date.
  • The combined penalty for failure to pay and failure to file is 5% of unpaid taxes for any month in which you owe both penalties.

A quick glance at these penalties shows why it's so important that you file your taxes on time, even if you can't pay on time. In most cases, the failure-to-file penalty is 10 times greater than the failure-to-pay penalty.

Keeping penalties to a minimum

Filing your taxes on time, even if you can't pay what you owe, is just one of several steps you can take to try to keep your IRS penalties to a minimum. You may wish to consider whether you could potentially take a personal loan to pay what you owe, depending upon whether the loan rate is lower than the penalties and interest the IRS will charge you. You could also explore IRS payment plans that can reduce the penalties you're subjected to.

Finally, to make sure you don't face the same problem next year, make a plan to save for taxes throughout the year or adjust your withholdings so enough money is taken out of your paycheck to pay the IRS what you owe.

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