File it anyway

WHAT CHANGED?

The six-month grace period on your 2025 federal tax return runs out on Thursday, October 15. If you filed for an extension back in April, that is the day the return itself is due — and the penalty on the other side of it is not the one most people brace for.

Here is the part worth knowing first. The penalty for not filing is 5% of what you owe for every month or part of a month the return is late, up to 25%. The penalty for filing on time and not paying is 0.5% a month. Same balance owed. Ten times the cost, decided entirely by whether the paperwork goes in.

Interest runs alongside either one. The agency set its rate on what individuals underpay at 7% a year, compounded daily, for the quarter that begins tomorrow.

WHO IS AFFECTED?

• You asked for an extension in April on your 2025 return. It moved your filing date to October 15 and left your payment date where it was, back on April 15.

• You have not filed a 2025 return at all and suspect you owe. The 5% meter has been running since April, and there is a floor under it: a return more than 60 days late carries a minimum penalty of $525 or the full amount of tax owed, whichever is smaller.

• You were living outside the country on the original due date, or your county sits in a federally declared disaster area. Your deadline may already be later than October 15. Check before you rush.

WHAT DOES IT MEAN?

Put a $3,000 balance through it. File on October 15 and send nothing that day, and the unpaid-balance penalty is about $15 a month. Leave the return unfiled and the two penalties together come to 5% — $150 a month — and they keep stacking for five months, $750, before the filing half stops growing. The unpaid-balance penalty then carries on by itself.

That gap is the whole story, and it runs opposite to instinct. People go quiet on the IRS because they cannot write the check. The silence is the expensive half. A balance has a payment plan behind it; a missing return has nothing behind it but 5% a month.

And if the money runs the other way, there is no late-filing penalty at all when you are owed a refund — but you have three years from the due date to claim it, and after that it stays with the Treasury. Retirees with tax withheld from a pension or an IRA withdrawal lose real money this way, by assuming a return they did not have to file was not worth filing.

WHAT TO DO

File the return by Thursday, October 15, whatever the bottom line says, and send whatever you can afford that day. Then handle the rest as a separate problem: a short-term plan of 180 days or less costs nothing to set up when your combined balance is under $100,000, and a monthly plan for $50,000 or less costs $29 with automatic withdrawals — nothing at all if you qualify as low income — through the agency's own payment-plan application. Filing on time and staying current on an approved plan also cuts that 0.5% penalty in half.

If the return itself is what is stuck, the free guided tax software covers adjusted gross income of $89,000 or less, and the fillable forms have no income limit at all. Reach either one through IRS.gov and nowhere else — a look-alike site is how this turns into an identity-theft problem.

One question for you: are you sitting on an unfiled return, or did October 15 catch you by surprise? Hit reply and tell me. I read every reply, and what you tell me decides what I cover next.

Know someone who owes and has been avoiding the envelope? Forward this to them, or send them your personal sign-up link so they get the next one too.

SOURCE: the IRS page on filing extensions

Written by Ellen Marsh

Retirement Money Brief is educational information only — not financial, tax, or legal advice. We will never ask you for an account number, Social Security number, password, or payment.