Most people would rather avoid thinking about what would happen if they don’t file taxes, but it’s still a good question. You may have asked the same thing out of frustration while struggling to fill out returns. If not, then you may have wondered about it since filing a tax return is a common practice every April. Unsurprisingly, not filing taxes can get you into a lot of trouble.
You’ll get a corresponding penalty based on how you’re failing to meet your tax obligations. This typically means the tax amount will keep increasing as long as you haven’t paid them off. If you delay your payments longer, the government may take some of your property to cover your unpaid amount. Worse, you may face time in the slammer!
Let’s talk in more detail about what would happen if you didn’t file taxes. After that, I will go through the steps to file taxes in print or e-file. You will also see the different ways of paying taxes later, so you’ll find it easier to pay on time. Later, you’ll see just how easy it is to file nowadays, so most people aren’t likely to fail to do so on time.
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Initial penalties for not filing taxes on time
In the United States, returns are handled by the Internal Revenue Service (IRS). If you fail to file tax returns, it will remind you via a notice or letter explaining the issue and its corresponding penalty.
This often involves an extra amount added to your current balance. The IRS computes a taxpayer’s penalties when he fails to file taxes or delays paying the stated amount.
We’ll only discuss the former because it’s related to our topic. Here’s how it works, according to the official IRS website:
- As I said, you’ll receive a letter that shows how much you owe and your payment deadline. That due date is usually set 21 calendar days after the IRS sends the notice. They cut that period to 10 calendar days if you owe $100,000 or more.
- Failure to pay by that due date, you will get a Failure to Pay Penalty. This is 0.5% of the monthly taxes you didn’t pay on time. Alternatively, this would be 0.5% of the partial month you didn’t pay after the deadline.
- You might have failed to file tax returns, but you have a payment plan approved by the IRS. In that case, your Failure to Pay Penalty is halved to 0.25%.
- If you still don’t pay your tax in 10 days after receiving the IRS notice, the Failure to Pay Penalty goes up to 1%.
- The IRS applies full monthly charges even if you submit the full amount before the month ends.
- The IRS also charges interest on penalties. Also, note that the Failure to Pay Penalty can increase as much as 25% depending on certain factors.
Major penalties if you keep on not filing taxes
If you owe a decade’s worth of taxes, the IRS will still charge you for those. Even if you don’t file tax returns, the IRS will ensure you do so. It may file a Substitution for Return (SFR) for you.
This isn’t an easier way to file your returns, though. The IRS may omit deductions or exemptions that could have reduced your balance. It will also send a letter along with the SFR.
It’s a notice that will remind you to pay this alternative return. If you don’t respond, the IRS will issue a notice of deficiency. Once this happens, that tax is your responsibility, and the IRS will start collecting.
To make sure you’ll pay, the IRS may place a lien against your property. This allows the IRS to sell your stuff to cover all your unpaid taxes, interest, and penalties.
Contrary to popular belief, your taxes aren’t considered credit card debts or other deferred payments. This means it will not damage your credit score.
If you persist in not filing your federal tax returns, the IRS may consider it a deliberate attempt to avoid paying taxes. That’s when Internal Revenue Code Section 7201 may take effect.
Under this law, you may receive up to five years in prison. Also, you will have to pay $250,000 in fines. These should be enough reasons for taxpayers to file taxes on time!
Read More: How Do Tax Write-Offs Work?
What to do if you fail to file taxes
The IRS is willing to work with taxpayers should they feel that they do not deserve a penalty. You may call the IRS toll-free numbers that are listed on this webpage.
On the other hand, you may send a letter to the Internal Revenue Service explaining your tax situation. You must mention the following information in your call or letter:
- The notice or letter you got from the IRS
- The penalty that you want the agency to reconsider
- An explanation as to why the IRS must remove that penalty
If you need more time to file your return, you may request it via electronic filing. Pay your tax liability on the form and choose the options for automatic tax-filing extension.
Note that you will still owe taxes that you must pay on the same date. You may also get an extension for filing by paying via Direct Pay, the EFTPS, a credit card, or a debit card.
Remember the payment plan we discussed earlier? That could give you more time to pay taxes. It provides an installment agreement that lets you pay your balance over time.
Still, you will have to meet certain criteria. You may click here to learn how to apply for a qualified payment plan. It’s much better to avoid penalties by filing taxes on time!
How to file taxes
Before you can file tax returns, you have to know the ones you must file. Here are the important IRS tax dates for 2022:
- 14th of January – IRS Free File service opens
- 18th of January – Final estimated tax payment for 2021
- 24th of January – Free MilTax service for military opens
- 18th of April – First estimated tax payment for 2022 and filing deadline for tax year 2021
- 15th of June – Second estimated tax payments for 2022
- 15 of September – Third estimated tax payments for 2022
- 17th of October – Extended deadline for filing tax returns for 2021
- January 17, 2023 – Fourth estimated tax payments for 2022
The most common requirement is the federal tax return, so we will discuss how to file those. Fortunately, the IRS provides a handy guide for this procedure:
- Prepare the paperwork such as the W-2 Forms and your 1099 and 1099-INT forms. If you’re itemizing your return, include the receipts for donations and business expenses.
- Pick your filing status based on whether you’re married or not. This will also affect how much you will pay for other taxes, such as capital gains.
- Choose how you want to file your taxes. The IRS says it’s much better to use tax preparation software because it’s more convenient and accurate.
- Decide if you’ll get a standard deduction or itemized returns.
- File your taxes by April 18, 2022. If you live in Massachusetts or Maine, your due date is the 19th.
When choosing your tax program, make sure you read its terms and conditions. It’s easy to fall for buzzwords like “maximum refund guarantee” or “100% accurate.”
Some may have a free edition, but it often lacks features. It typically asks users to create an account and pay for access. For best results, you might want to get a tax professional instead.
We just talked about what may happen if you don’t file taxes on time. This is a part of life for most people around the world. You might be surprised to know that even the Amish pay taxes!
It’s much better to submit payments on time rather than face penalties. If you’re having trouble filing tax returns, you could request an extension.