What happens if you don’t file taxes?

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The tax-filing deadline is typically April 15 each year. The filing deadline can be extended to Oct. 15 without issue. However, tax payments are still due by April 15. Not being able to file on time can happen for a number of reasons, from simple forgetfulness to unexpected emergencies.

Regardless of what may cause a person to miss the tax filing deadline, there are potential consequences. This is what happens if you don’t file taxes.

What happens if you file taxes late

Again, the April 15 deadline is for making tax payments. Individuals can apply for an extension to file later in the year.

However, if April 15 passes before you make your tax payments, there are a couple of different things that may happen, depending on your status as a taxpayer.

What happens if you don’t owe taxes or get a tax refund?

Most Americans get a tax refund after filing their federal and state taxes. This occurs when you have paid more in taxes over the course of the year than you owe. Most employers withhold money from each paycheck, which go toward your taxes — but those withholdings typically don’t account for the rebates and credits that you may be eligible for, resulting in the government needing to pay you back in the form of a tax refund.

If you fall into this category, owing no taxes to the government or being owed a tax refund, then there is no penalty that occurs for not filing your taxes. However, you won’t receive your tax refund until you do file your taxes. There will be no penalty for filing late, just get the paperwork in to the IRS so they can process your taxes and issue the refund. Technically, you have three years to file taxes and receive a refund.

What happens if you do owe taxes?

If you are self-employed or don’t have money withheld from your paycheck, odds are that you will owe the government money when you file your taxes. That means if you fail to file your taxes by April 15, you may start facing penalties because you owe the government money.

You can delay some of these penalties by filing for a tax extension. This gives you an additional six months to file your taxes, allowing extra time to get everything in order and delaying some of the penalties for failing to file that you may otherwise face. Filing an extension will prevent the government from penalizing you for failing to file. Your tax payment is due April 15 regardless of when you file. Potential penalties and interest may apply for not making your payment on time, regardless of whether you have extended your filing deadline.

Failure to file penalties

If you don’t file for an extension, or fail to file by the extended deadline, you will start to face penalties. Failure to file penalties result in a 5 percent penalty each month on any unpaid taxes, capping at 25 percent. Here is how it breaks down:

  • First month: 5 percent of tax liability
  • Second month: 5 percent of tax liability, plus a penalty of $210 or 100 percent of your tax liability, whichever is less
  • Third month: 5 percent of tax liability
  • Fourth month: 5 percent of tax liability
  • Fifth month: 5 percent of tax liability

There are some cases, including natural disasters and military service, that the government will forgive failure to file penalties. But unless you fall under one of those exemptions, expect to pay the penalty. The IRS can also recommend jail time for people who fail to file their taxes, though such cases are rare.

State laws vary considerably, so check what your local laws are for failure to file.

What happens if you pay taxes late

Whether you file your taxes or not, you owe the government money, and the government expects to be paid on time. That means failing to pay your taxes on time can result in penalties, as well. Whether you submit your taxes or not, the IRS will send you a notice for what you owe. Failing to pay that amount by the date they are due, April 15, will result in daily and monthly penalties.

Each month that you fail to pay your taxes in full will result in the IRS assessing a penalty of 0.5 percent of your total tax liability. This will continue each month, maxing out at 25 percent of your total owed tax bill.

There is also interest owed on any outstanding taxes, which begins to accrue the first day that your taxes aren’t paid and compounds daily until the bill is paid in full. The interest will be determined by the current federal short-term interest rate plus an additional 3 percent. The short-term rate changes every three months, so your interest rate may go up or down depending on how long it takes to pay your taxes in full.

Paying down your owed taxes creates less money for the government to charge interest on, resulting in the failure to pay penalty being less severe. However, allowing it to accrue long term can result in steep and significant fines. The IRS can also seek to have people jailed for failing to pay their taxes, but it is extremely uncommon for that to happen — particularly if the tax bill is not well into the hundreds of thousands of dollars or more.

State laws vary considerably, so check what your local laws are for failure to pay.

What happens if you haven’t paid taxes in years

If you haven’t paid your taxes in years, it is possible that the IRS will seek to recover those funds from you in a number of ways. This may include garnishing wages from your paycheck, placing a lien on your home or other high-value property, or come directly for your bank account. The IRS may also withhold future tax returns until your tax bill has been paid down.

There are other penalties you may face, as well. If you owe more than $51,000 in taxes, the government can refuse to issue you a passport. The IRS may also choose to refer your outstanding tax payment to a private collections agency, which will likely be much more aggressive in trying to recover the funds.

There is a 10-year statute of limitations on unpaid taxes, meaning in most cases the IRS cannot pursue taxes owed that go back beyond a decade. There are some exceptions, but in most cases, the agency will have to drop its collection efforts.

Steps to take if you’re behind on taxes

If you have fallen behind on your taxes or haven’t paid your taxes in years, there are a number of steps that you can take to help alleviate the pain that penalties and interest for unpaid tax liabilities may place on you.

  • Determine how much you owe: Before you can start paying, you need to know just how much you owe the IRS. You can determine this by requesting your transcripts from the IRS. Even if you haven’t filed taxes in years, you will be able to see the information the IRS has on hand and see how much the agency believes you owe based on the information it has access to.
  • File your taxes: If you haven’t filed your taxes yet, it is best to do so. Contact your employers and ask for a copy of your tax documents. They should have them on hand and be able to provide these records. Upon filing, you may find that you are owed a refund that can help to lessen your tax bill.

What to do if you can’t afford to pay taxes

If you can’t afford to pay your taxes, you will want to contact the IRS and inform them of this. The agency is more interested in collecting what it can than penalizing you, and is likely to work with you to set up a payment plan or an installment agreement. Payment plans still carry some interest and penalties, but less than the penalties for those who are not paying. However, failing to make a payment may result in the government requesting the full amount and ending the installment plan.

If you inform the IRS that you cannot pay, it is also open to negotiating a smaller payment. Oftentimes, the IRS will lessen your overall tax burden if you are willing to pay in a lump sum.

Written by
AJ Dellinger
Contributing writer
AJ Dellinger is a contributing writer for Bankrate. AJ writes about auto loans.
Edited by
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Reviewed by
Senior wealth manager, LourdMurray