What Happens If I Don’t File a Tax Return?
Filing taxes can be stressful, however, neglecting to file your taxes can cause a lot more stress further down the line. This post goes over who needs to file a tax return, the consequences of not filing, and why you may want to file even if you aren’t required to.
Who is required to file?
While most Americans are required to file, there are a few exceptions. The IRS looks at your gross income, filing status, age, and whether you are a dependent to determine if you’re required to file. Typically, taxpayers whose annual income is less than the standard deduction don’t need to file, unless there are special circumstances, such as self-employment income. However, even if you aren’t required to file, you may want to file to claim your refund if you overpaid your taxes for the year.
If you’re not sure whether you’re required to file, you can use the IRS Interactive Tax Assistant tool to find out.
What happens if I don’t file and I owe taxes?
The IRS has penalties for both not filing a tax return and not paying taxes owed by the deadline. Penalties are charged monthly and will be applied for the month, even if you pay your tax in full before the month ends. Interest is also charged on these penalties. If you refuse to file and pay, it may result in the IRS enforcing tax liens or pursuing legal action against you.
Failure to File Penalty
Failing to file your tax return when you have an unpaid balance due will result in a Failure to File Penalty equal to 5% of the unpaid taxes for each month or part of the month that your tax return is late. This penalty won’t exceed 25% of your unpaid taxes, maxing out at 5 months.
Tax returns over 60 days late will receive a minimum Failure to File Penalty of $425 or 100% of the amount of tax shown on your tax return, whichever is less.
Failure to Pay Penalty
Failing to pay taxes owed by the deadline will result in a Failure to Pay Penalty equal to 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. This penalty won’t exceed 25% of your unpaid taxes. The penalty will increase to 1% per month if you don’t pay within 10 days after receiving a notice from the IRS with their intent to levy. Combined, the Failure to File Penalty and the Failure to Pay Penalty won’t exceed 5% for any given month.
As you can see, the Failure to File Penalty has a higher penalty rate than the Failure to Pay Penalty, so even if you can’t pay your taxes by the deadline, you should still file your tax return. You can also lower your Failure to Pay Penalty to 0.25% per month by filing your tax return and setting up an approved payment plan.
Substitute Tax Return
If you refuse to file, the IRS may file a substitute tax return on your behalf based on information they have received from your employers, banks, and other payers, such as W-2s and 1099 forms. They will not include any credits or deductions, so it’s best to file your own tax return to take advantage of the credits and deductions you're eligible for and lower your tax liability. The IRS will provide a 90-day notice for you to submit a past-due tax return before they file a substitute tax return for you.
What happens if I don’t file and I have a refund?
While there is no penalty for not filing a tax return if you’re owed a refund, taxpayers who are required to file should do so by the deadline to stay in compliance with the IRS. If you miss the deadline, you have up to three years after the original tax deadline to file a tax return to claim your refund, otherwise, it becomes property of the U.S. Treasury.
Even if you aren’t required to file, you may still be eligible to claim a refund and take advantage of credits such as the Earned Income Tax Credit or Recovery Rebate Credit (COVID-19 stimulus checks). You can only claim these if you file a tax return. In March 2022, the IRS announced that they had $1.5 billion in unclaimed refunds for 2018 tax returns.
As you can see, in most cases you are better off filing a tax return by the deadline, even if you aren’t required to.
Got Tax Questions?
If you have questions, please feel free to contact us at (360) 922-0235. Our tax preparers would be happy to help you understand possible penalties you may face and determine whether it would be beneficial for you to file even if you aren’t required to.
Disclaimer: This material is prepared for informational purposes only, and is not tax advice. Please speak with a tax professional or view the resources below to see how this information may apply to you.
