Let's talk about something that keeps a lot of people up at night: not filing taxes. Maybe you missed a year. Maybe you've missed several years. Maybe you're scared to even find out what you owe. Whatever your situation, I'm here to give you the straight truth about what happens when you don't file taxes—and more importantly, how to fix it.
First, take a deep breath.
You're not alone, and this is fixable. Every year, millions of people fall
behind on their taxes. The IRS has seen it all, and they have programs
specifically designed to help you get back on track. Let's break down exactly
what you're facing and what you need to do.
What Happens If You Don't File Your Taxes?
The consequences of not filing
taxes depend on whether you owe money or are due a refund. Let's start with the
worst-case scenario:
If You Owe Taxes
This is where things get
expensive. Here's what happens:
Failure-to-File Penalty: The
IRS charges you 5% of your unpaid taxes for EACH MONTH you're late, up to a
maximum of 25%. So if you owe $5,000 and you're five months late, that's an
extra $1,250 in penalties.
Failure-to-Pay Penalty: On
top of the failure-to-file penalty, you'll also get hit with 0.5% per month.
This continues until you pay what you owe, up to 25%.
Interest: The IRS
charges interest on both your unpaid taxes AND the penalties, compounded daily.
This means your tax debt grows every single day.
Tax Liens: If you ignore
the IRS long enough, they can file a federal tax lien against you. This is
public record and will destroy your credit score.
Tax Levies: In extreme
cases, the IRS can seize your assets, garnish your wages, or take money
directly from your bank account.
Passport Revocation: If
you owe more than $62,000 in back taxes, the IRS can notify the State
Department to deny or revoke your passport.
If You're Due a Refund
Good news: if you're getting a
refund, the penalties are much less severe. However, you only have three years
from the original due date to claim your refund. After that, the money goes to
the Treasury and you can never get it back!
Will the IRS File Your Taxes for You?
Yes! If you don't file and the
IRS has information showing you owe taxes, they can file what's called a
Substitute for Return. But when the IRS files for you, they:
•
Give you the standard deduction only
•
Don't claim any credits you might qualify for
•
Don't include any deductions you could have claimed
•
File you as single even if you're married
In other words, they'll make
you owe WAY more than you probably actually do. This is why you should ALWAYS
file your own return, even if it's late.
How to Fix Unfiled Tax Returns: Step-by-Step
1.
Step 1: Don't Panic
2.
Step 2: Gather Your Documents - W-2s, 1099s, records of
income and deductions
3.
Step 3: File Your Back Taxes - Use the tax forms from
the year you're filing for
4.
Step 4: Pay What You Can - Even partial payment reduces
penalties and interest
5.
Step 5: Set Up a Payment Plan - The IRS offers
installment agreements and payment options
Can You Get Penalties Reduced or Removed?
Yes! If you have a good reason
for not filing, you can request penalty abatement. The IRS considers:
•
First-time penalty abatement if you have a clean filing
history
•
Reasonable cause such as serious illness, death in
family, or natural disaster
•
Statutory exceptions like being in a combat zone
Common Myths About Not Filing Taxes
Myth 1: The IRS will never
find out. Wrong! Your employers send copies of your W-2s to the IRS. They
know you had income.
Myth 2: I'll go to jail. Very
unlikely. Simply not filing isn't a crime. The IRS wants your money, not to put
you in jail.
Myth 3: The debt will
disappear after 7 years. Nope! Tax debt doesn't disappear. The IRS has 10
years from assessment to collect.
Frequently Asked Questions
How many years back do I need to file?
The IRS typically wants you to
file the last 6 years to be considered current. However, if you're due refunds,
file for all years where refunds are still available.
What if I can't afford to pay what I owe?
File anyway! Then contact the
IRS immediately about a payment plan. Not filing makes everything worse, even
if you can't pay.
Will this affect my credit score?
Not filing taxes itself doesn't
affect your credit. However, if the IRS files a tax lien against you, that will
show up on your credit report.
The Bottom Line
I know facing unfiled tax
returns is scary. But ignoring the problem only makes it worse. The IRS is
surprisingly reasonable if you proactively deal with the problem. They have
programs to help you, they'll work with you on payment plans, and they might
even reduce your penalties.
But you have to take the first
step. Gather your documents, file those returns, and set up a payment plan if
needed. Future you will be SO grateful you handled this.
Have you dealt with unfiled
tax returns? What was your experience? Drop a comment below and share your
story—it might help someone else who's in the same boat!
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