Filing taxes on time can be a big burden for many Americans. Not only do you have to consider what your tax bill will be, but you have to adhere to deadlines and ensure all information is accurate.
It’s important for taxpayers to understand whether or not they may owe taxes and whether they’ll get a refund back, as these distinctions will impact potential penalties and outcomes.
Unfortunately, the IRS issues penalties and other consequences if you fail to file your tax return. The tax laws surrounding filing can be tricky, so this guide provides the basics of tax return filing obligations, penalties for unfiled returns, and other potential consequences of not filing.
Who Needs to File Tax Returns?
Most people who live and work in the U.S., as well as U.S. citizens around the world and people with U.S.-source income, must file a tax return annually. Income thresholds are set each year, and only those whose income is above these thresholds need to file.
Additionally, if you’re a self-employed individual, you have to file and report income if you earn over $400 in net earnings. Here are the thresholds by filing status for tax year 2023 that you would use for filing in 2024:
- Single, under 65: at least $13,850 in gross income
- Single, 65 or older: at least $15,700
- Head of household, under 65: at least $20,800
- Head of household, 65 or older: at least $22,650
- Married filing jointly, both spouses under 65: $27,700
- Married filing jointly, one spouse 65 or older: $29,200
- Married filing jointly, both spouses 65 or older: $30,700
- Married filing separately: at least $5
Pay close attention to these thresholds, as the IRS may update them each year. Your income will dictate whether you have to file by the annual deadline, which is April 15.
Even if you are getting a refund back and don’t owe the IRS anything, it’s still wise to file on time so you get your refund as soon as possible.
Penalties for Unfiled Tax Returns
So, what is the penalty for filing taxes late?
When you fail to file your tax return and were supposed to file one, you’ll get a notice from the IRS about a failure to file penalty. This penalty applies when you miss the filing deadline. Here’s how it’s calculated:
- The penalty is 5% of your unpaid tax balance each month, not to exceed 25% of your unpaid taxes.
- The penalty maxes out after five or six months.
- If your return is over 60 days late, your minimum penalty is $450 for 2023 return deadlines and $485 for deadlines after 2023, or 100% of your tax underpayment, whichever is less.
Remember that interest also accrues on penalties, adding to your total balance.
If you fail to file and fail to pay your tax balance, you’ll also be hit with the failure to pay penalty, which is 0.5% of your unpaid tax balance each month, not to exceed 25% of your balance. If both types of penalties are applied in the same month, the IRS reduces your failure to file penalty by the amount of your failure to pay penalty. So, your combined penalty will be 5% each month.
Important: If you file your tax return late but you’re getting a refund, you don’t have to worry about the failure to file penalty. However, you won’t get your refund without filing, and you only have three years from the original filing due date to claim it.
When Does the IRS file an SFR?
Another tax term to know is the substitute for return (SFR). This isn’t something you file, but the IRS files it on your behalf in certain situations. SFRs are usually automatically generated, and the system uses information about your income that it gets from third parties, such as employers or clients.
If you fail to file, the IRS may file an SFR for you two years after your return was due. You may be thinking, “Great! The IRS can just do it for me!” But this isn’t ideal. You won’t be able to claim any deductions or credits that you qualify for if the IRS files an SFR for you. This means your tax bill may be higher than if you filed your return yourself when you could have claimed all those tax breaks you were eligible for.
You’ll find out about an SFR and any taxes you owe through IRS notices. If you continue to ignore them, the IRS will initiate collection actions.
Losing Your Tax Refund
Many taxpayers miss out on their tax refund because they don’t file. Even if you’re not required to file based on your income, you won’t get any potential refund you may have received unless you file.
If the IRS owes you a refund, you don’t have forever to claim it. The law states you only have three years from when the return was due to claim the refund. This is why it’s so important to meet all tax deadlines.
Other Consequences of Not Filing Your Tax Return
The potential issues don’t stop at failure to file penalties or the late tax penalty. Keep these additional consequences in mind:
- Compounding interest: The IRS has the right to charge interest on any unpaid balance. The rate is currently 8%. These are additional charges on top of your unpaid balance that you want to avoid. The interest starts compounding, which is never good.
- Penalties for missing estimated tax deadlines: If you’re required to pay quarterly estimated taxes—if you’re self-employed, for example—you also need to file quarterly tax returns to pay this estimated tax regularly. Missing these deadlines—which are April 15, June 15, September 15, and January 15—will lead to additional penalties.
- Missing out on your tax refund: To get your refund, you need to file a tax return. The IRS doesn’t automatically send out checks when you’re owed something. The sooner you file, the quicker you’ll receive your refund.
- Getting behind on tax compliance: Once you fail to file and pay your balance, you risk doing the same thing next year, and then your penalties and interest charges will continue to build. It can feel impossible to get out from under a lot of tax debt once it all starts to accumulate interest and snowball into a more significant issue.
You don’t want to be in a situation where the IRS initiates collections actions against you, which could further impact your financial and legal situation. If you’ve missed the filing deadline, talk to a tax expert about how to get back in good standing with the IRS.
What About Criminal Charges?
Unfortunately, persistent tax noncompliance, including failing to file and pay, can lead to criminal charges. Most people won’t go to jail for failing to file a tax return, but charges of tax evasion or tax fraud can result in jail time.
Typically, criminal charges only come from instances when the IRS finds that your failing to comply with tax law was willful and you knowingly tried to evade your tax obligations. These are cases where tax issues could lead to jail time and more significant criminal penalties.
However, talk to a tax attorney when you’re worried about being charged. Every situation is different, but the chance of jail time is unlikely if you simply just failed to file.
Steps for Resolving Unfiled Returns
The good news is that you have options if you have unfiled tax returns. Taking action sooner rather than later helps you avoid the penalty for not filing taxes and mitigate your consequences. Here are a few ways to start:
- File your tax return: The best thing you can do if you miss the filing deadline is to file as soon as possible. This will help you minimize your penalties and interest moving forward.
- Pay your unpaid balance: Pay off your tax balance as soon as you’re able. Paying on time will also ensure you’re not getting hit with more penalties from the IRS.
- Set up a payment plan: The IRS offers installment agreements in many cases. You can potentially pay off your balance over a set period of time by making monthly installments if you can’t afford to pay it all at once.
- Consider other forms of tax relief: The IRS also provides options, including offers in compromise or currently not collectible status, to help taxpayers facing financial hardship. You may qualify for these options to get temporary relief or settle your tax debt with the IRS.
- Apply for a filing extension: The IRS allows taxpayers to extend their filing deadline by six months when they’re having trouble filing on time. Note, however, that this only applies to filing, not paying. If you owe the IRS money, you still have to pay on time or set up a payment plan.
- Apply for first-time penalty abatement: If you have a history of good tax compliance, particularly over the last three years, you can apply for first-time abatement. If your request is approved, the IRS could lower or eliminate the penalty they issued against you.
- Talk to a tax expert: Tax attorneys and other tax professionals are available to help you navigate these tough situations. Work with an expert to figure out which option is right for you so you can get back on your feet with your tax obligations.
Voluntary compliance is always the way to go. This means acting to correct your errors and oversights before the IRS even contacts you. This could get you out of trouble sooner and may even help you avoid penalties.
When to Talk to a Tax Professional
Tax obligations are one of the biggest stressors for Americans. There are many laws to sift through and requirements to understand to stay in good standing with the IRS.Don’t let your tax returns slip by and end up with a hefty amount of tax debt with building penalties and interest.
Our team of expert tax attorneys at Wiggam Law can guide you through your tax requirements. We understand that paying taxes is closely connected with all of your financial concerns, and we’re committed to helping you solve your problems with better solutions. We can help with unfiled returns, unpaid taxes, tax audits, representation, IRS negotiations, and much more.
Avoid the penalty for late taxes by working with the team at Wiggam Law. Contact us today to get started with a consultation.
Unfiled Tax Return FAQs
What if I miss the tax filing deadline?
Missing the tax deadline is more common than you think. Apply for an extension, which gives you an extra six months, but remember you still have to pay by the original deadline if you owe money. Get your tax return filed as quickly as possible after realizing you’ve missed the deadline.
What are the penalties for not paying taxes?
If you don’t file a tax return and you’re required to, the IRS will send you a notice about the failure to file penalty, which is 5% of your balance due, up to 25%. If you don’t pay what you owe on time, you could also face the failure to pay penalty, which is 0.5% of your balance, up to 25%. Pay as soon as possible to avoid compounding interest, IRS collection actions, and legal trouble.
Can I go to jail for failing to file a tax return?
Most people who fail to file don’t go to jail or face criminal charges. However, if the issue persists and the IRS finds that you willfully avoided paying taxes, you could face jail time and significant criminal penalty charges.
What is the tax filing deadline?
The annual filing deadline is April 15 unless it falls on a weekend or holiday, in which case it is the next business day after April 15th. If you’re required to pay estimated tax, the deadlines are usually April 15, June 15, September 15, and January 15.
Do I have to file a tax return?
Most people who are US citizens, permanent residents, or live in the U.S. have to file taxes. You may not be required to file if you’re under the income thresholds for a given year, but check with a tax professional before making the call.
Can I get the IRS to waive a tax penalty?
You can apply for penalty abatement in some cases. For example, if it is your first tax penalty in the last three years and you have otherwise complied with your tax obligations, the IRS could approve you for first-time penalty abatement, which can reduce or remove your penalty.
Can the IRS file a tax return for me?
In many situations, the IRS’ automated system may file a substitute for return (SFR) on your behalf if they received information about your income from other parties, such as an employer. However, the IRS will not consider tax breaks or deductions you may be eligible for when filing, so you could end up paying more than necessary.