What Happens If You Don't File Your Tax Return?

Find out the consequences and your options if you fail to file a tax return.

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What should you do if you "forget" to file your tax return with the IRS? And, even more important, what will the IRS do to you?

If you fail to file a tax return or contact the IRS, you are subject to the following:

  • Penalties and interest will be assessed and will increase the amount of tax due. You'll have to pay the IRS interest of .5% of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, until the tax is paid in full or the 25% maximum penalty is reached. The interest rate increases to 1% if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy. You'll also owe a late-filing penalty, which is usually 5% of the tax owed for each month, or part of a month that your return is late, up to five months. If your return is over 60 days late, the minimum penalty for late filing is the smaller of $135 or 100% of the tax owed.
  • If you're self-employed, you will not receive credits toward Social Security retirement or disability benefits. Failure to file results in not reporting any self-employment income to the Social Security Administration.
  • The IRS will file a substitute return for you. But this return is based only on information the IRS has from other sources. Thus, if the IRS prepares this substitute return, it will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability.
  • Once the tax is assessed the IRS will start the collection process, which can include placing a levy on wages or bank accounts or filing a federal tax lien against your property.

You should file your return as soon as possible and pay all the tax that is due, if any. You'll save money by doing so because the IRS late penalty and interest charges are calculated from the date your return was due (April 15), so the earlier you file, the less you pay.

If you can't afford to pay all the tax that is due, you should still file and pay as much as you can. By paying as much as possible now, the amount of interest and penalties you'll owe will be lessened.

You can enter into an installment agreement with the IRS. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at www.irs.gov.

 

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