What's the harm in filing your taxes late? It depends on whether you owe Uncle Sam or Uncle Sam owes you.

If the IRS owes you a refund, you face no repercussions, aside from losing the opportunity to invest or spend that money while it's still in the government's hands. In this case, you actually have until Tax Day 2021 to file your 2017 tax return. Wait longer and you forfeit your refund to the U.S. Treasury. The IRS says taxpayers leave $1.1 billion on the table this way.

What if you owe the government money? The IRS can charge you penalties and interest on the amount you owe.

With Tuesday, April 17, the deadline for filing your 2017 federal and state income tax returns, here’s what you need to know, depending on your circumstances.

If you owe and don’t file your return by the IRS tax deadline, the IRS will charge you a “failure to file” penalty that grows every month that you don’t file your return. The tax penalty is typically 5 percent of the amount you owe. After one month, if you still haven’t filed, it rises by another 5 percent—to 10 percent—of the original amount owed. This could continue until your total tax penalty rises to 25 percent.

If after 60 days you still haven’t filed, an IRS rule may kick in that charges you a minimum penalty of $205 or 100 percent of what you owe, whichever is less. This may not apply, however, depending on how much you owe the IRS. The IRS lets you know whether you will be charged the 60-day penalty or if you’ll continue to be subject to the 5 percent growing penalty.

If you file your return on time but don't pay in full, you’re in a better position. You’ll have to pay a tax penalty of one half of one percent for every month that you’re late—much lower than the penalty for filing late. Like the “failure to file” penalty, the late payment penalty grows every month. So if you pay one half of one percent in the first month you’re late, the total penalty will rise to 1 percent in the second month and 1.5 percent in the third month. This will continue until the tax penalty reaches a cap of 25 percent of the amount you owe, which can take more than four years.

More on Taxes and Tax Prep

Unfortunately, you’re also liable for interest on what you owe. That interest is based on the federal short-term rate and changes every quarter. Currently it's annualized to 5 percent and is compounded daily. 

Figuring out how much you’ll owe in penalties is complicated. Barbara Weltman, contributing editor of "J.K. Lasser's Your Income Tax 2018" (Wiley, 2017) suggests using a calculator that can help you to estimate what your penalties will be. 

Mitigating Factors

One way to lower your tax penalty is to sign up for the IRS installment plan. You can do this if you file on time but can't pay all the taxes you owe. Under the installment plan, your late-payment penalty is cut in half, to one-quarter percent. You’ll still owe interest on the unpaid balance.

There some instances when the IRS will excuse you if you were late to file or pay:

  • If you are active-duty military working abroad or the victim of a federally declared disaster, you can submit a detailed explanation and backup documentation to the IRS explaining your situation. The IRS will review and let you know if you are exempt from paying penalties. Residents of Puerto Rico and the U.S. Virgin Islands, areas that are still recovering from Hurricane Maria, have until June 29 to file.
  • If you were affected by a disaster that was not federally declared and are still unable to file or pay all your taxes, the IRS may still waive penalties and give you an extension. Contact the IRS at 800-829-1040 to request penalty abatement. 
  • If you or someone in your family was seriously ill and couldn’t meet the tax deadline, the IRS may consider that reasonable cause for being late. If you get a penalty notice, respond explaining your situation.
  • U.S. citizens and resident aliens who both live and work abroad have until June 15 to file a completed return. You will, however, have to pay interest on the amount due for the period between April 17 and June 15.