For many, filing a tax return is a requirement. It all boils down to a person’s filing status, age, and income.
So, what happens if you’re required to file but don’t?
If you’re due a refund you have three years to file in order to claim it. You’ll still be required to file your return; however, if you file after the three-year limit, you will no longer be eligible to receive that refund.
If you owe taxes and fail to file, the consequences can be more severe. The U.S. tax system is a pay-as-you-go system. We’re expected to pay our taxes as we earn our income, either through withholding or estimated payments. Every day we don’t file or pay our taxes past the tax deadline, penalties and interest accrue on that amount owed. We’re allowed to request an extension to file by October, but there is no extension for paying.
Section 6651(a)(1) of the Tax Code allows for a 5% “Failure to File Penalty” every month it isn’t filed. Section 6651(a)(2) allows for a “Failure to Pay Penalty” of .5% every month the tax isn’t paid. As of the 2nd Quarter of 2023, interest was kept at 7% for individuals (compounded daily).
It’s possible for the IRS to file a “substitute” return on your behalf. The IRS files such return using third-party reports such as W2s, 1099s, and any other tax documents submitted to them. You may lose out on credits and deductions if a substitute return is filed for you, potentially increasing your tax liability.
For those delaying filing a tax return because they owe, the IRS suggests filing anyway and requesting to be put on a payment plan. You can apply for a payment plan online or by calling the IRS at 800-829-1040.
the Confident Taxpayer 