What Will Happen if I Don’t File My Taxes?

No one really wants to pay their taxes, but that doesn’t mean you should skip out from paying them. Failing to report income to the IRS can result in hefty penalties, fines, and even legal action against you. If you know you can’t afford to pay your taxes, you should still file before the deadline. If you don’t, here’s what happens if you don’t file your taxes.

Failure-to-File Penalty

The first of many penalties a person receives for not filing their taxes is the failure-to-file penalty. For every month your return is late, you will be charged five percent of your unpaid taxes until the balance hits 25 percent. That’s a quarter of your entire taxes tacked on to your bill. It may not seem too bad now, but if you consider a multi-thousand dollar tax bill with an additional thousand or more dollars added on, things start to get overwhelming.

On top of the 25-percent penalty, if you wait more than 60 days to file, you’ll be charged $135 or 100-percent of what you owe (whichever is more). People who wind up owing over $1,000 or even $5,000 most often regret failing to turn in their tax return before the deadline. It’s just isn’t worth the hassle and the massive fine.

Just because you can’t afford to pay your taxes right away doesn’t mean you should avoid filing them altogether.

Failure-to-Pay Penalty

In addition to being charged for not filing your taxes on time, you will also be charged this penalty if you don’t pay your tax bill by the due date. The current failure-to-pay penalty is five percent of your unpaid taxes for every month they’re late. Don’t fret, however, you can always file for an extension.

The maximum amount you’ll be charged per month if both the failure-to-file and failure-to-pay penalties are applied to your balance is five percent of the total tax bill.

Federal Tax Lien

People who fail to pay their taxes on time and repeatedly ignore any notices could face legal ramification. A federal tax lien is a claim against your property from the IRS. Tax liens alert creditors to your unpaid debt, which means your name will be turned over to collection agencies and they will begin pursuing you for the balance.

The IRS collections process requires you to respond to a tax bill within 10 days before a lien is put out against you. If you arrange a repayment plan, then a lien won’t be filed. You will be issued a Notice of Federal Tax Lien after one has been sent out.

If you’ve received a notice, you can either pay off your debt in full or make an Offer in Compromise. You can file an extension to pay your bill within 120 days to avoid a levy. A tax levy will result in the IRS garnishing your wages, taking money directly from your bank account or seizing your property to cover your debt.

I Got a Bill in the Mail from the IRS. What Do I Do Now?

If you’ve received a bill from the Internal Revenue Service, you have to respond ASAP. The bill is the start of what can be a lengthy, drawn-out collections process that can cost you hundreds or even thousands of dollars in late fees, penalties and interest.

The bill you receive will list the amount of taxes you owe as well as any penalties and interest you’ve already incurred. If you can’t afford to pay off the balance in full, you should pay as much as you can and contact the IRS using the number listed on the bill.

Get a Free Filing Extension Before You’re Late

The filing deadline for this year is April 15, 2019. If you’re not sure you’ll be able to file your taxes by then, you can request a free six-month extension from the IRS that will push your filing deadline until October 15, 2019.

The easiest way to get your deadline extended is by using the IRS’s Free File service online. In order to be granted an extension, you must provide an approximate estimate of your tax liability. Regardless of your income bracket, you can file for the free extension with Form 4686 and be given an additional six months to report your earnings and pay your bill.

When you file for a free extension, you automatically spare yourself the late fees and interest rates applied after the April 15th deadline.

I Missed the Tax Filing Deadline. What Can I Do?

You can still file your taxes past the April 15th deadline. Even if you’re only a day late, hop online and choose a free filing service to submit your return. The IRS’s Free File is always available, but you can also search online for other e-file software to find a company you like.

Filing as soon as possible will decrease any interest or penalties you may accrue if you wait. The best way to avoid a failure-to-pay penalty or additional interest is to file and arrange a payment plan immediately with the IRS if you’re unable to pay off the bill right away.

If You Wait Too Long to File, You Will Lose Tax Credits

The IRS gives people three years to file a late tax return and still claim a full refund as well as tax credits. If you wait beyond this point, you’ll lose any ability to minimize the damage of interest and fees by paying them off with deductions and credits.

The Earned Income Tax Credit is one of the most generous and widely used credit by American taxpayers. In 2018, a person filing as single can save up to $14,000. You can claim the EITC up to three years late, so if you’ve got any 2015 returns waiting to be reported, now is your last chance.

File Now, Pay Later

Even if you can’t afford to pay off your taxes, filing on time will keep you in good standing with the IRS and help minimize any interest or penalties. You can request a short-term repayment plan that gives you four months (120 days) to pay off your entire balance without any late fees or additional penalties. After that, a long-term repayment plan may have some interest, but it’s much smaller than anything you’ll face for not filing at all.

So, get online and start filing! Even if you’re late, the sooner you file, the better it is for and your wallet!