Filing your taxes each year is critical to staying out of trouble with the IRS. If you don’t file, you can face penalties and interest charges on what you owe. The IRS may even take money out of your bank account or seize assets to cover your unpaid tax. Without filing, you may also miss out on tax breaks and deductions.
It’s tax season again, which means millions of Americans are scrambling to get their paperwork in order. Although it may seem like a chore, filing your taxes will save you from paying a lot more than necessary to Uncle Sam in penalties and interest charges. It also helps you keep track of your financial status throughout the year.
But what happens if you’ve missed a few filing deadlines in the past years? What are some of the consequences of not meeting tax obligations? And what can you do to ensure this doesn’t happen again? Read on to find out everything you need to know about filing your taxes each year.
First off, do you need to file taxes?
Not everyone needs to file taxes, but most working individuals do. And practically everyone should. You must file taxes if your yearly income exceeds a certain amount. This amount changes based on your filing status and age, so be sure to review the requirements below carefully.
What are the general filing requirements?
For the tax year of 2021, you need to file taxes if:
- Your filing status is single, and you’re under the age of 65 with a gross income of at least $12,550.
- Your filing status is single, and you’re over the age of 65 with a gross income of at least $14,250.
- You file as head of household, and you’re under the age of 65 with a gross income of at least $18,800.
- You file as head of household, and you’re over the age of 65 with a gross income of at least $20,500.
- You’re a qualifying widow(er) under the age of 65 with a gross income of at least $25,100.
- You’re a qualifying widow(er) over the age of 65 with a gross income of at least $26,800.
Of course, this doesn’t cover all scenarios. Make sure to check out the complete filing requirements published by the IRS on its Draft 2021 Form 1040 Instructions.
Are you self-employed?
While most people work for someone else and have taxes taken out of their paycheck, self-employed people are responsible for filing and paying their own federal income tax. So if you’re currently self-employed and have yearly net earnings of $400 or more, you may need to file a Schedule C to calculate and report your net profit.
If you expect to owe more than $1,000 in self-employment tax this year, you must also make estimated quarterly tax payments using Form 1040-ES.
Do you expect to receive a tax return?
Even if you don’t owe taxes, you still might want to file a return to get money back from the IRS. By filing your taxes, you can take advantage of tax credits such as the Earned Income Tax Credit or the Child Tax Credit. If you don’t file, you can’t claim these credits and receive the tax refund you’re entitled to.
Do you owe state taxes?
The filing requirements mentioned above only apply to federal taxes, so don’t forget about your state returns as well.
If you currently live in a state with state-level income tax, consult with a tax professional or do some research to find out what you need to file this year. Only the following states do not have state income taxes: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Do I have to file taxes if I don’t owe anything?
Most people with a yearly income under a certain threshold aren’t required to file a tax return because they don’t owe the government any taxes. However, it might still be a good idea to file taxes even if you aren’t required to. If you qualify for certain tax credits or if federal income taxes have been deducted from your paycheck, the IRS might actually owe you a refund — which you can only get by filing your tax return.
What if I need help filing my taxes?
The consequences for not filing can be quite serious, including fines, interest on any back taxes owed, and even criminal charges in rare cases. In general, the longer you wait to file, the worse the consequences will be. So it’s always best to file taxes as soon as you can.
If you’re not confident about doing taxes on your own, talk to a tax professional or use tax preparation software. To make sure you find the best help, we recommend comparing tax preparation tools before making your final decision. You can start your search below with comparison tools and personal reviews.
What happens if you don’t file taxes?
The IRS doesn’t play when it comes to filing taxes. Just ask Al Capone, or look at the IRS’s indictment and conviction rate below.
Failure to file taxes can be a costly crime. The Internal Revenue Code § 7201 states that any willful attempt to evade taxes can be punished by up to 5 years in prison and $250,000 in fines. So, what happens if you don’t file taxes this year or haven’t filed taxes in the past years? Here are a few scenarios.
You’ll accrue failure to file penalties and interest
If you don’t file your taxes, you can expect to accrue failure to file penalties and interest. In fact, the more years you don’t file, the more you’ll owe in back taxes, penalties, and interest. So it’s important to file your taxes each year and make sure you have all the documents you need weeks before the deadline.
The failure to file penalty is equal to 5% of unpaid taxes each month they’re late, capping at 25%. In terms of interest charges, the rate is determined quarterly and is usually the federal short-term rate plus 3%.
The IRS may take collection or legal action
If you don’t meet your tax obligations, the IRS will eventually take action to collect the total tax liability you owe. They may levy (take) your wages, bank accounts, or other assets to pay down the tax bill. They could even have a federal tax lien filed against your property, which might make your house difficult to sell or refinance.
In addition, the IRS can file criminal charges against you if they believe you intentionally committed tax fraud or tax evasion. This is a serious offense that could potentially result in a prison sentence.
The IRS may file your taxes for you
The IRS may also file a Substitution for Return (SFR) on your behalf if they haven’t received your tax filing. This document lists all of the income the IRS believes you should have reported on your tax return. However, they likely won’t apply any exemptions, credits, or deductions for you, which means your actual tax liability might be overstated.
You won’t receive your tax refund
The Internal Revenue Service will only process and send out refunds to taxpayers who filed their returns. If you haven’t done this by the filing deadline, the IRS will keep your refund and apply it to any taxes you may owe. So if you’re expecting a refund, make sure to file by the due date to receive your money as quickly as possible.
You’ll receive a summons from the IRS
If you don’t pay taxes and the IRS is not notified why the taxes cannot be paid, you can expect to receive a summons from the IRS.
A summons is essentially an official order to produce information or provide testimony to aid in an IRS investigation. If you receive a summons from the IRS, it’s important to take it seriously. Failure to comply with the summons can potentially result in a lengthy legal process.
Can you go to jail if you don’t file your taxes?
Yes, you can go to jail for unfiled tax returns. If the IRS thinks you are evading your taxes, either by intentionally filling out your return incorrectly or failing to file your return entirely, you might face jail time. Tax evasion can land you in prison for five years while failing to file your return will give you one year in prison for every year you do not file.
However, please keep in mind that this is different from genuinely forgetting to file your taxes, not having enough money to pay taxes, or making an honest error in your tax return.
What should I do if I can’t afford to pay my taxes?
If you’re unable to pay your taxes, there are options available to help. Rather than accruing fees through a failure to pay penalty, take a look at the IRS’s various tax payment programs. For example, an installment agreement with the IRS can help you pay your tax debt within an extended timeframe. The offer in compromise program is another option that allows individuals or businesses with tax debt to settle their accounts for less than the total amount owed. If you qualify, your tax balance is wiped clean after making the agreed payments.
If you need help paying your taxes, it’s important to find a solution as soon as possible to reduce penalties and interest you might accrue. To find out more about these programs, visit the IRS website or consult a tax relief specialist to find out exactly what programs you qualify for.
- It might still be a good idea to file taxes even if you’re not required to. This way, you can take advantage of tax credits and receive any tax refund you’re entitled to.
- If you fail to file taxes, you can expect to accrue failure to pay penalties as well as interest charges — which can quickly add up over time.
- The IRS can take action to collect the tax bill you owe by seizing your funds or assets to pay down the debt. They can also have a federal tax lien filed against your property.
- You can potentially go to jail for not filing your taxes. However, this is only if you are intentionally committing crimes such as tax fraud and tax evasion.
- If you’re truly unable to pay your taxes due to financial reasons, you should take advantage of the tax payment programs the IRS offers. For example, installment agreements and the offer in compromise program.
View Article Sources
- Do I Need to File a Tax Return? — IRS
- Dealing with SFRs and ASFRs – Substitutes for Returns – IRC 6020(b) — IRS
- Do You Need to File a Tax Return? — USA.gov
- 10 Common Mistakes When Filing Your Taxes — SuperMoney
- Ultimate Guide to Unfiled Tax Returns — SuperMoney
- How to File Self-Employment Taxes Step by Step — SuperMoney
- How to Guarantee You Will Get a Tax Refund Next Year — SuperMoney
- Best Tax Preparation Firms | March 2022 — SuperMoney
- The Best Tax Relief Companies | March 2022 — SuperMoney