What Happens if You Don't File Taxes?

Written By
Julija A.
Updated
January 04,2022

Every year on April 15, Americans file their annual federal tax returns. They report their income to the government and calculate how much tax they need to pay to the Internal Revenue Service (IRS).

Sometimes, though, things go wrong. Citizens might forget the deadline or face an emergency which means they can’t file.

As you might expect, the consequences of failing to file aren’t good. In this post, we look at what happens if you don’t file your taxes and, more importantly, what you can do to avoid running afoul of government requirements.

What Happens If You Don’t File Your Taxes On Time?

Federal rules say that people who owe taxes must file them by the April 15 deadline. After that, you're borrowing money from the government (at least in their eyes). However, what happens to you if you miss a tax payment depends on whether you owe taxes or not.

You Owe Taxes

If you owe taxes, like most employed US adults do, you may face penalties if you do not file by the April 15 tax-filing deadline (discussed below). However, you can request a tax extension giving you an additional six months to file your taxes.

For instance, you might not be fully aware of your tax position by April 15 if your accounts are more complicated than the average person’s.

Remember, though, if you fail to pay your total owed tax bill by the deadline, you’ll usually have to pay some kind of penalty or fine (discussed below).

You Do Not Owe Taxes

Some people do not pay federal government taxes. These individuals generally fall into two categories:

  1. Those with gross incomes below the standard deduction
  2. Those whose employers pay taxes on their behalf

In some cases, employees overpay tax and then receive a tax refund at the end of the year. Employers apply standard tax rates to PAYE accounts to be on the safe side, and then apply various credits and rebates at the end of the tax period.

If you don’t owe taxes or the IRS owes you a refund, you will not face penalties for filing late. However, if you do not file in time – or your employer fails to do so on your behalf – then your refund. If you’re eligible for a refund for a given year, you have three years to file it with your taxes.

What Happens if You File Taxes Late?

If you fail to file your taxes, the authorities may take the following actions:

Summons

Even if you don’t communicate with the IRS about your income for the year, you may still receive a summons – a sort of unfriendly request to discuss the money you earned and what the IRS is thus owed in taxes.

You don’t have to provide the tax authorities with any information, but your employer might submit details about your income on your behalf.

The summons will arrive in the post in the form of a letter. It’ll demand that you meet with the IRS to discuss your accounts and determine your unpaid tax liabilities.

Penalties For Failing To Pay

You will face penalties for failing to pay your taxes if:

  1. You fail to pay your taxes by the April 15 deadline and do not file for an extension
  2. You fail to pay by the October 15 deadline if you’ve been granted an extension

The IRS charges penalties on outstanding balances. You will pay 0.5% of the tax liability for each month you fail to pay. On top of that, there’s a 4.5% penalty for failing to file each month. The authorities cap the total penalty at 25% of the taxes you owe.

There are some situations where you can avoid penalties for late filing of taxes, though they are rare. Exemptions include:

  • Serving as military personnel in a combat zone
  • Victims of natural disasters

Interest On Unpaid Taxes And Penalties

Unfortunately, that’s not the end of the story. You will also pay interest on any taxes and penalties that you fail to pay, starting from the date they’re due.

The federal government typically charges an interest rate of 3% plus the federal reserve short-term rate per year on all outstanding balances. So if the base rate is 2%, you’ll pay 5% per year on taxes and penalties you owe.

Additional Penalties

If you don’t file on time (or fail to file taxes repeatedly), the IRS may take the following actions:

  • File a substitute return on your behalf (which might not give you credit for all the deductions and exemptions to which you’re entitled)
  • Propose enforcement action, which could include levies on your wages or bank balance
  • Provide notice of a federal tax lien
  • Prosecute you

Tax Exemptions

Some people don’t have to file taxes, but the rules vary depending on your age.

Under 65 Years Old

If your gross annual income is lower than the standard deduction, you don’t need to file taxes. (This figure changes regularly. Most recently, it was $12,400 for a single filer, $24,800 for married couples jointly filing, and $18,650 for people who qualify as “Head of Household”).

However, if your net income is more than $400 a month, you must still file a tax return, even if you come under the standard deduction. Remember, if you are listed as a dependent, your deductions may be lower.

Over 65 Years Old

If you’re over the age of 65, the rules are slightly different. Minimum incomes for filing returns are lower than for those under the age of 65. (If you were a single filer, you would have had to file taxes if your income is over $14,050 in 2021, or more than $27,400 if filing jointly with somebody else who is also older than 65).

What to Do if You’re Behind On Your Taxes

If you’re behind on your taxes, there are several actions you can take to make good on any payments you owe.

First, you can find out exactly what the IRS believes you need to pay them. If you’re self-employed or run a business, this figure is primarily based on what you or your accountant tells them.

If you’ve lost this information, you can request your account transcripts from the IRS. These contain details of current and past tax filings, including how much you owe.

Remember, this information is just what the agency has access to. It is not necessarily the correct amount you owe. For instance, they may believe that your income is higher than it is and, therefore, be charging you more than they should.

Likewise, you may have reported a lower income in the past, leading to a lower official tax liability compared to what you need to officially pay.

If you haven’t filed your taxes but need to do so, you should proceed as early as possible. This way, you can avoid potential fines and convictions. You may also qualify for a tax refund, depending on your financial position.

What to Do If You Can’t Afford To Pay Taxes

If you can’t pay your taxes, you’ll need to inform the IRS as soon as you can. Generally speaking, the agency wants to collect, not penalize. Applying penalties and chasing you for money is expensive and something the federal government would prefer to avoid.

In most cases, you can reach a payment installment plan with the IRS to pay the taxes you owe in manageable chunks, perhaps with a small interest rate added. This process is particularly helpful for people whose incomes have fallen dramatically over a single year.

In extreme cases, you may want to file for bankruptcy. Chapter 7 eliminates all federal and state tax debt that you owe. It also ruins your credit, however, so only do this as a last resort.

Wrapping Up

So, what happens if you don’t file taxes? In summary, if you miss the tax filing deadline, you will face a raft of penalties. If you want to avoid paying taxes, you need to leave the US and live in a different jurisdiction with no taxes on income or capital.

FAQ

Can I get a mortgage with unfiled taxes?

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If you have unfiled tax returns in your recent history, you may struggle to get a mortgage. Lenders want to see evidence of both income and tax payments to ensure that you won’t face significant liabilities in the future that might affect your ability to pay back your loan.

What happens if you don't file state taxes?

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If you don’t pay state taxes, you’ll face penalties similar to those imposed by the federal government. These include penalties, interest, and interest on penalties.

What happens if you don't file taxes for a deceased person?

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If you don’t file taxes on behalf of somebody who has died, the IRS can impose a federal lien against their estate. This legal tool means that you must pay the deceased’s taxes before continuing the inheritance process.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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