What happens if you can’t file tax returns by the filing deadline? This article discusses how failure to file tax returns by the filing deadline can create a costly tax situation. It will also offer guidance for those who have already missed a critical deadline.
Written by Attorney Kimberly Berson.
Updated June 7, 2021
Benjamin Franklin once mused that “In this world, nothing is certain except death and taxes.” You can count on tax day rolling around every year. Tax day is the deadline to file tax returns and to pay taxes before late filing penalties will be imposed. Tax law requires people and businesses to file a federal income tax return and (in most states) a state income tax return and to pay their tax bills by the tax deadline every year.
The tax deadline is typically April 15th. But this year it is May 17th, due to the coronavirus pandemic. What happens if you can’t file tax returns by the filing deadline? This article discusses how failure to file tax returns by the filing deadline can create a costly tax situation. It will also offer guidance for those who have already missed a critical deadline.
IRS Penalties for Not Filing a Return
If you don’t file tax returns on time, it will cost you. IRS penalties will be charged and in rare cases, criminal sanctions may be imposed. Not all individuals are required to file a tax return every year. So, the first step is to determine if you need to file a tax return.
How Do I Know If I Need to File a Tax Return?
There is a minimum amount of income that you need to earn before you are required to file a federal tax return. The minimum income amount depends on your filing status, age, and other factors. Below are some examples of the minimum income levels that need to be met for the 2020 tax year before a person is required to file a tax return:
Single filer under age 65 - $12,400;
Single filer, age 65 or older - $14,050;
Married and filing jointly, both under age 65 - $24,800;
Married and filing jointly, one under age 65 and the other age 65 or older - $26,100;
Married and filing jointly, both spouses are age 65 or older - $27,400.
If you’re not sure where you fit, you can use this handy tool from the IRS to find out whether you need to file a tax return.
What Are The Penalties If I Don’t File A Return?
If you owe taxes and don’t file your return by the filing deadline, you may incur penalties and interest. A late filing penalty will be charged for not filing your tax returns on time. This Failure-to-File Penalty is 5% per month of the unpaid tax. It will not exceed 25% of the amount of tax due.
If the return is more than 60 days late, the minimum penalty imposed will be $435 or the tax you owe, whichever is less. By not paying your taxes by the due date, you will be charged a late payment penalty. This Failure-to-Pay-Penalty is one-half of one percent for each month that the tax remains unpaid, up to a maximum amount of 25% of the tax liability.
Interest will be charged on unpaid taxes and penalties. Interest is even charged on the accrued interest. The IRS interest rate is the federal short-term rate plus 3%. The rate is set every three months, and interest is compounded daily.
Can I Get My Tax Refund or Tax Credit If I Don’t File a Return?
Taxpayers who have had federal taxes withheld from their paycheck may be entitled to a tax refund. If a taxpayer is owed a tax refund, a penalty will not be imposed for failure to file a tax return. But a taxpayer won’t receive a refund until the tax return is filed. Most taxpayers only have three years to claim a refund by filing a return or they lose the refund. Similarly, to claim certain tax credits, a tax return needs to be filed.
Can I Go to Jail For Not Filing Tax Returns?
The government can file criminal charges against those who willfully fail to file tax returns to avoid having to pay taxes. If found guilty, jail time and criminal fines may be imposed. However, charging an individual with criminal misconduct related to a failure to file is very rare. Folks who end up getting charged criminally have multiple years of unfiled or missed tax returns and generally owe hundreds of thousands of tax debt.
How Do I Avoid A Tax Penalty?
To avoid tax penalties, file tax returns by the due date. If you can’t file your tax return by the tax deadline, apply for a tax extension to file the return. Unfortunately, an extension to file the return doesn’t extend the time you have to pay your taxes. If you apply for an extension to file a return, pay your estimated tax liability to avoid a failure-to-pay penalty. If you pay at least 90% of your tax bill, you may avoid penalties.
Can I Get Relief from a Tax Penalty?
You may seek relief from a tax penalty if you can show that you have reasonable cause that prevented you from filing your tax return and paying the taxes by the due date. Reasonable cause is based upon all the facts and circumstances. The IRS website provides certain special circumstances that may be considered reasonable cause such as:
Fire, casualty, natural disaster, or other disturbances;
Inability to obtain records;
Death, serious illness, incapacitation, or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family;
Is There A First-Time Penalty Abatement?
The IRS may provide relief from the penalty for failure to file a tax return or the penalty for failure to pay if it’s your first time seeking relief from a penalty and you meet the following criteria:
You didn’t previously have to file a return or you have no penalties for the 3 tax years before the tax year in which you received a penalty;
You filed all currently required returns or filed an extension of time to file;
You have paid, or arranged to pay, any tax due.
The failure to pay penalty will continue to accrue until the tax liability is paid in full. It’s a good idea to wait until all overdue taxes and interest are paid to request a penalty abatement so you can abate the maximum penalty possible.
The IRS Will Start Attempting to Collect Your Tax Debt
Even if you haven't filed your tax return, the IRS may still start to try and collect your tax liability from you.
How Will The IRS Know That I Earned Income?
Your employer will file informational returns with the IRS, such as W2s, which show the income you earned through your employment. If you are self-employed and acted as an independent contractor, a Form1099 will be provided to the IRS which shows the income that was paid to you as an independent contractor.
Will the IRS Contact Me Before It Starts Collecting?
If you don’t file a tax return and pay your taxes, the IRS will send you a series of notices. You may receive a call from the IRS Service Center or a revenue officer from the local center. The IRS will prepare a Substitute for Return (SFR) form for you that will calculate the tax you owe. The tax assessment will ultimately be unfavorable because it won’t include additional exemptions and expenses. You can address these missing elements on your return once you file it. If the IRS has filed an SFR against you, you can file a return. The IRS will usually rely on your return to calculate tax liability.
What Happens if I Remain Delinquent On My Taxes?
The IRS will start collection actions to recover tax liability based on the SFR or your return. You will receive notices of intent to levy or a notice of federal tax lien. A federal tax lien on your property allows the IRS to go after your property to pay the back taxes. The IRS could go after your bank account or garnish your wages to satisfy the back taxes.
The notices will provide you with your collection due process rights. You will have a right to request a hearing within 30 days of the notice before the IRS will levy on your property. The statute of limitations (the deadline for the IRS to collect unpaid taxes) is 10 years from the date of the assessment. The IRS statute of limitations does not begin to run until a tax return is filed.
What Can I Do to Prevent the IRS from Levying My Assets?
File a tax return and determine your tax liability. Tax forms are available for free on the IRS website. You can file taxes online. If you can’t pay your tax debt, the IRS may agree to enter into an installment agreement with you. An installment agreement is a payment agreement that allows you to pay unpaid taxes over a number of months. If you’re eligible for a penalty abatement, this may reduce the amount that you need to pay. A partial payment installment plan may be available to you where you only pay back a portion of the amount owed. You will have to show you can’t pay the full amount of the tax debt.
In some circumstances, if the IRS agrees that you can’t pay both your taxes and your basic living expenses, it may place your account in “Currently Not Collectible” (CNC) status. This means that the IRS will not try to collect from you. But you will still be charged interest and penalties on your unpaid taxes regardless of this shift.
Failure to file tax returns and to pay taxes by the tax deadline often result in negative financial consequences. You will be charged penalties and interest which will significantly increase your tax bill. If you can’t file your return by the tax deadline, you may seek an extension to file your return. This will not extend the time to pay your taxes. You can pay your tax debt by direct pay through your bank account, with a credit card, or a debit card. If you can’t pay your full tax bill, work out an agreement with the IRS so you can limit penalties and interest from accruing.