What Happens If You Don’t File Taxes

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Few people get excited about filing their income tax return with the Internal Revenue Service each year, but on-time filing is necessary to avoid penalties, interest, liens and levies. Also, falling behind on your taxes creates unnecessary stress because paying back taxes can be a long process.

Advice: 3 Tricky Tax Filing Issues — And How To Handle Them
Tax Day 2022: When Are the First and Last Days To File?

The federal income tax deadline for individuals is April 18, 2022, for the 2021 tax year — several days later than usual, since the 15th falls on a Friday. Read on to learn what happens if you don’t file taxes.

What Happens When I Don’t File My Taxes?

Although there are a few exceptions, filing taxes is a must, so not filing your taxes could have serious consequences.

Do I Have To File Taxes? 3 Times You Can Skip It

You’ll Be Subject To a Tax Penalty for Not Filing

Not filing your income tax return can lead to IRS penalties, including:

  • Failure-to-file penalty: If you fail to file your taxes and you owe money, the IRS charges a late filing penalty of 5% of the tax owed per month or part of the month, the return is late, up to 25%.
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You’ll Miss Out on IRS Refunds

Filing a tax return doesn’t necessarily mean that you owe money. In fact, most taxpayers get a refund when they file their income tax returns: More than 70% of tax filers receive a tax refund, according to Fox Business. If you don’t file a return, the IRS can’t refund the extra money to you. And if you don’t file your tax return for three years after the return’s original due date, you lose your right to claim that money entirely.

See: These Are the Receipts To Keep for Doing Your Taxes

What Happens When I Don’t Pay My Taxes?

Because paying taxes is something imposed by the federal government, not paying your taxes could leave you in a worse financial situation than you started in.

You’ll Be Subject To a Tax Penalty for Not Paying

If you don’t pay your taxes when you file, you will end up paying more because of these penalties:

  • Failure-to-pay penalty: The IRS charges a 0.5% penalty on the tax owed for each month, or part of the month, the payment is late, up to 25%. The rate becomes 1% if the tax is still unpaid 10 days after the IRS issues a notice of its intent to levy property.
  • Interest: Interest accrues on your unpaid taxes from the date the tax is due based on the federal short-term rate plus 3%. Interest compounds daily.
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Related: What To Do When You Can’t Pay Your Tax Bill

You Could Be Subject To IRS Tax Liens

When the IRS determines that you owe taxes, it will send you a letter stating the amount you owe, known as a Notice and Demand for Payment. If you don’t pay the debt on time, the IRS places a tax lien against all of your property, including your home, car and bank accounts. The tax lien gives the IRS the right to the proceeds of any of your property.

According to the IRS, if your home has equity, “the tax lien is paid out of the sales proceeds at the time of closing.” If you sell your home, the IRS has the right to the proceeds to pay the back taxes you owe. When the IRS files a Notice of Federal Tax Lien, it becomes a public record and hurts your credit score. It can take up to 30 days from the time of your tax payment until the IRS releases the lien.

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You Could Be Subject To an IRS Tax Levy

If you don’t pay your taxes after receiving a Notice and Demand for Payment, the IRS will then send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days in advance of the levy. If you have not resolved the tax debt at that time, the IRS can seize your property, including your house or car, and sell it to pay what you owe, or have your employer pay your wages to the government instead of to you.

Read: How To Avoid Paying Taxes Legally — and the 11 Craziest Ways People Have Done It

Excuses for Not Filing Taxes

It’s hard to find a legitimate reason for not filing taxes that the IRS will accept. Here are some common excuses people might use for not filing taxes — and reasons why you shouldn’t use these excuses:

  • “I don’t have time to do my taxes.” Life can be hectic, but the filing deadline is not until April, plus you’re also entitled to request a two- or six-month extension to file your taxes. But, this is only an extension for filing your taxes, not for paying what you owe.
  • “The IRS will never find out if I don’t file.” The IRS receives matching copies of your W-2, 1099s and other forms that document your income from the various entities that pay you. If your employer doesn’t report your wages, the IRS will question the employer’s tax return if it claims deductions for wages paid to you.
  • “I can’t pay my taxes.” If you can’t pay your entire tax bill, reach out to the IRS. Payment plans are available that can minimize interest and penalties on your income tax return.
  • “I didn’t receive tax forms.” You should receive the tax forms you need to file your return by the end of January. If you do not receive them, contact your employer or financial institution to make sure it has your correct address. If that doesn’t work, call the IRS at 800-829-1040 for assistance. You will need your employer’s address and phone number, your dates of employment and approximate earnings. You are still responsible for estimating what you owe and filing on time. If you need to make changes, you can always file an amended tax return.

Related: 7 Ways You’re Accidentally Committing Tax Fraud

Get Help With Your Income Tax Return

Although taxes can be confusing, it’s better that you file your return on time, regardless of whether or not you can pay your tax bill on time. If you need help filing or paying, the IRS offers several free tax help options for low-income taxpayers, including help to file taxes online. The IRS can also set up a payment plan to help you avoid owing more than you already do or to help you pay the back taxes you owe.

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About the Author

Michael Keenan is a writer based in the Kansas City area, specializing in personal finance, taxation, and business topics. He has been writing since 2009 and has been published by Quicken, TurboTax and The Motley Fool.
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