Hiding From Uncle Sam

4:11 p.m. EST February 21, 2001 -- Brace yourself. Not surprisingly, Uncle Sam doesn't look kindly on laggards. And that could mean you owe an additional 25% of your bill in penalties, plus 0.75% in monthly interest (9% annually) on your outstanding balance (including interest on your penalties). If that doesn't inspire you to send in that check, we don't know what will.

Just how badly you'll be punished for your tardiness depends, in part, on whether you failed to file your taxes altogether (i.e., you didn't send in any paperwork) or whether you simply neglected to pay the taxes you owed. Not filing at all (combined with not paying your bill) carries a maximum monthly penalty of 5% on the taxes you owe, up to a total of 25% over that time period. You'll also be charged 9% annual interest on both the taxes and the penalties, plus a 0.5% penalty for each additional month the taxes remain unpaid.

If, on the other hand, you filed but didn't pay, you'll only owe a late-payment penalty of 0.5% of what's owed, which will continue until you either pay up or reach 25%. Keep in mind, this penalty generally won't be applied if you had "reasonable cause" (for example, extreme financial hardship) not to pay your taxes, as opposed to "willful neglect." Either way, you'll also get hit for that 9% interest on the taxes, though not on any penalties.

While this news is a bit late in coming, you should know that you probably could have avoided any penalties by dealing with this problem upfront. If, for example, you filed but didn't have the money to pay what you owe, you could have established a payment plan with the IRS, which would have waived the penalties (but still charged you 9% in interest annually). To do this, fill out Form 9465. (For more on this, see our story "Dear IRS, I Can't Pay.") On the other hand, if you had the money to pay your taxes but were unable to file for some reason, filing for an extension and paying up to 90% of what you owed would have avoided the "failure-to-file penalty" and left you owing interest only on the remaining unpaid 10%.

We assume we don't need to point out that it's getting to be that time of year when you should start thinking about filing your 2000 taxes. Even if you can't afford to pay this year's taxes either, you should file a return for tax year 2000 on time and set up an installment-plan agreement to avoid digging yourself into a deeper hole, advises Art Ford, a CPA at Sullivan Bille in Tewksbury, Mass. So find yourself a decent accountant or head to the store for TurboTax, and get cracking.

For more tax-filing articles, be sure to visit our Tax Guide.