What Happens if I Don’t File My Taxes?

Nothing good. Simply put, if you fail to file or pay your taxes on time, the IRS will start sending you notices in the mail and begin the collection process. There are a number of penalties, fees, and interest charges associated with not filing or paying your taxes.

While you should always try to pay as much of your taxes as you can on time, it is not usually beneficial to file an incomplete tax return just to meet the deadline. An inaccurate or incomplete tax return will likely invite an IRS tax audit. And if you don’t file at all, the IRS will prepare a return for you, which will not include all the tax breaks that you may be entitled to.

Filing but Not Paying

If you file your taxes but cannot pay your tax liability in full, you will be subject to a 0.5% late payment penalty as well as interest (currently the Federal short-term rate plus 3%). These fees are charged as a percentage of your unpaid taxes, and are imposed every month until your taxes are paid. If your taxes remain unpaid after several IRS notices and 10 days after the IRS issues you a “final notice of intent to levy or seize property,” the 0.5% payment penalty increases to 1% per month. The late payment penalty will keep increasing, up to a maximum of 25%, until you pay your taxes. If you cannot pay on time, you should consider applying for an installment agreement.

Paying but Not Filing

If you pay at least 90% of your tax liability by the original deadline, you will be able to avoid the late payment penalty – although interest will still be charged on any unpaid taxes. The IRS charges a combined penalty of 5% for delinquent taxpayers (4.5% for late filing and 0.5% for late payment). But since most of these IRS penalties are based on your unpaid tax liability, the penalties for not filing (when no tax is due) are lower. If your tax return is more than 60 days late, the minimum filing penalty is $135.

Not Filing and Not Paying

This is the worst situation you can find yourself in. If you fail to both file and pay your taxes, you will find yourself in a very negative position with the IRS. Most legal counsel and tax professionals advise that (at the very least) you file a tax extension if you suspect you won’t be able to file your return on time.

If you do not file a tax return or extension by April 15 (the annual deadline for most individuals) and you do not pay your taxes, the IRS will charge 5% for each month (or part of a month) that your return is late, up to 25%. If you still haven’t filed or paid after 5 months, the filing penalty will max out, and the payment penalty will continue to increase until your taxes are paid, up to 25%. The total combined penalty can reach a whopping 47.5% of your tax owed (22.5% for late filing and 25% for late payment).

If you fail to file a return, you are also subject to the IRS filing a return on your behalf in absentia, essentially preparing your tax return for you. While this might seem fine, you must understand that the IRS is not obligated to ensure all tax credits and deductions are included, which means that your tax liability could be substantially higher. Furthermore, if you are due a tax refund and you do not file, you will lose the refund.

If you cannot pay the entire portion of your taxes, it is much better to file your return and work on a payment plan than not filing your tax return. If you cannot prepare your return by the due date, you should get a tax extension to avoid the costly filing penalties.

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