How (and Why) To File Back Taxes if You Haven’t Filed in Years

Why Do I Need To File Tax Returns? 

You need to file your federal income tax return every year to avoid civil penalties and even possible criminal prosecution. Your tax liability — the amount you’re responsible for paying to the IRS — is determined by your filing status (married or single), age, and gross income. 

Another important factor is how you earn income. Your taxes will look a little different if you are a W-2 employee than if you are self-employed or own a small business.

For the most part, if you earn more than the standard deduction, you need to file a tax return. If you aren’t sure what that means, you can use the IRS’s Interactive Tax Assistant to answer a short questionnaire and see if you're required to file a tax return.

Can I Get my Tax Refund if I Don’t File Taxes?

You have to file your tax return to receive a refund. You have three years from the due date of the return to file and claim a refund. 

The annual tax filing deadline is typically April 15. This is known as tax day. In a normal year where April 15 falls on a weekday, this would mean you have until April 15th three years from that date to file and get your refund. 

Most people who have taxes withheld from their paychecks receive a refund. Even if nothing was withheld, you may have money due through the earned income tax credit, the child tax credit, the Affordable Care Act health insurance premium credit, or other tax credits.

What if I Can’t Afford To File My Taxes?

The downside of filing a tax return is you may have to pay taxes you can't afford. However, the IRS has payment plans and settlement opportunities for people who need a little help, including

• Offer in Compromise (OIC) settlement: This is an agreement between a taxpayer and the IRS to settle a tax debt for less than the full amount owed.

• Partial Payment Installment Agreement (PPIA): This is a monthly payment program where you pay back your tax bill in installments.

• Currently Not Collectable (CNC) status: If the IRS issues this status, it will suspend collection activities until your financial condition improves.

What Happens if I Don’t File My Taxes?

If you’re required to file taxes but intentionally choose not to, that’s usually considered tax evasion, which is a criminal offense. It’s important to never lie to the IRS by claiming to have filed your taxes when you haven’t. 

That said, the IRS rarely uses criminal prosecution against taxpayers. They don’t have the resources to criminally prosecute every non-filer so if they do prosecute, they focus on high-profile or extremely large tax debt cases. 

What Are the Penalties for Not Filing Taxes or for Filing Taxes Late?

While the IRS rarely uses criminal prosecution to enforce taxpayer obligations, they do implement civil penalties. Here are the three most common penalties:

• Failure to file penalty

• Failure to pay penalty

• Late filing penalty

If you fail to file your taxes, you'll be given a failure to file penalty. If you fail to pay, you may also receive a failure to pay penalty. If you file your tax return late, you'll also be penalized.

Over time, penalties plus interest that may accrue on your unpaid taxes can significantly increase your tax bill. However, you can ask the IRS about penalty abatement to have penalties waived and/or interest removed. This can help make your bill more affordable.

What Is a Penalty Abatement for Taxes?

Penalty abatement is essentially a process for requesting a waiver or reduction of penalties. One program that taxpayers can use is the: First Time Penalty Abatement program. 

To qualify for this penalty abatement program, you must meet the following requirements:

• You didn't previously have to file a return or you haven’t had a penalty in the last three years of filing taxes.

• You’ve filed all currently required returns or extensions to file those returns.

• You have paid or arranged to pay any tax due.

You can also request penalty abatement for other reasons, including:

• If the IRS gave written advice that led to the penalty

• If you’re under a specific legal exclusion (such as disaster relief)

• If the IRS is looking to settle with you because they're at risk of losing litigation with you

• If you have a reasonable excuse for the penalty (long-term illness, disaster, loss of records, etc.) 

Note: Even if you receive a penalty abatement, the failure to pay penalty will continue to accrue until you’ve paid the tax in full. Because of this, you may want to wait until the tax portion has been paid before requesting penalty abatement. You can do this by filing Form 843. 

If you’re confused by the process, you can always consult a tax professional, such as a CPA, attorney, or enrolled agent. You can also hire a professional to represent your case with the IRS if needed.

The IRS May File Your Taxes for You if You Fail To File

If you haven't filed tax returns, the IRS may file for you. This is called a substitute for return (SFR). When the IRS prepares a substitute for return, it will use the information it has available. 

This isn’t preferable for several reasons:

• You’ll only get the standard deduction.

• The SFR may be prepared as if you're single, even if you’re married, which can impact your return significantly. 

• You’ll lose out on tax deductions available to you.

• It may cost you more than filing your own. For example, if you earned more in previous years but the IRS only had old information, you could end up paying more.

You can still prepare your tax return if and after the IRS files an SFR, and it’ll usually accept your numbers instead. If the IRS doesn't replace the SFR with your tax return, you can appeal that decision to the IRS Office of Appeals. 

How Do You File Taxes That Are Past Due?

You can file your old tax returns in person at a local IRS office, electronically, or by mail. 

There are a few ways to e-file your taxes. With this method, you'll get an electronic receipt to keep for your records.

To file in person at the local IRS office, bring two copies of your returns: one to file with the IRS and one to keep for your records. Have the IRS time-stamp the receipt on the first page of each of your copies of the returns.

To file by mail, you need to use certified or registered mail with a return receipt to have proof that you sent something to the IRS. 

Use the Correct Tax Form for the Correct Year

If you're filing a return for a prior tax year, you must use the correct form for that tax year. For example, if you're filing an individual income tax return for 2018, you can't use Form 1040 for 2020. You must use the 1040 Form for 2018. 

It's easy to find tax forms for previous years online. You can download them from the IRS Prior Year Forms page. If that’s not an option for you, you can also:

• Pick up hard copies up at your local IRS office

• Call the IRS Forms Department at 800-829-FORM (3676) to request them

• Use a tax software program to prepare your return

• Contact a  tax professional for help

Is There a Statute of Limitations for the IRS To Audit Me?

The normal time limit, or statute of limitations, for the IRS to conduct an audit on a tax return is three years from the date the return was filed. However, if there's fraud involved or if no return was filed, there is no statute of limitations. This means that the IRS can initiate an audit at any time without any time restriction.

Also, if you file a tax return and understate your income by more than 25%, the IRS gets up to six years to audit and/or assess new taxes against you.

Do I Have To File My State Tax Returns?

Yes, if you live in a state with income tax. Every state that has an income tax has an information-sharing agreement with the IRS. Often, states are the first to notice you haven't been filing your state tax returns and they will alert the IRS that you haven't been filing your returns.

The following states do not have an income tax: 

• Alaska

• Florida

• Nevada

• New Hampshire (taxes investment income but not earned income)

• South Dakota

• Tennessee (taxes investment income but not earned income)

• Texas

• Washington

• Wyoming 

Do I Have to File a Tax Return if I Receive a 1099 or W-2?

Usually, yes. If you're a 1099 or W-2 employee, you need to file your taxes. The Information Returns Program (IRP) is a very effective method of finding non-filers. If you receive an information return — like a W-2 or 1099 — the IRS will try to match it to a tax return. 

The IRS receives a copy of the W-2s and 1099s you receive. If there's no return to match it to, they'll know you’re not filing taxes. 

You Can Get a Transcript of Your Old W-2 and 1099 Information From the IRS if You Can’t Find Your Copies

If you're preparing an old tax return, you're going to need your tax documents for that year. It's common for people to lose their old W-2s and 1099s, but you can get a transcript of your account that will provide you with the information you need from those tax documents.

The easiest way to get your tax transcript is online from the IRS’s Get Transcript site. Just keep in mind that your transcript won't include any unreported income you may have earned from self-employment or other business activities.

You must put this income on your return or you could be found guilty of tax fraud. You'll have to look at your old business records and bank statements to figure out your unreported income. It can be difficult to compile these old records, which is why it's best to prepare your tax return every year if you're self-employed.

You Can Hire a Tax Professional if You Need Help

Filing several years of back taxes can be a daunting task. It may be a good idea to hire a tax professional or use tax software. If you can’t afford a tax professional, the following programs may be able to help you:

• The Volunteer Income Tax Assistance (VITA) is a program for lower-income taxpayers, people with disabilities, and taxpayers who have a limited ability to understand English. 

• The Tax Counseling for the Elderly (TCE) is a program that provides free help for elderly taxpayers.

• AARP Foundation Tax-Aide is a program that provides free tax assistance and preparation for elderly taxpayers. 

• The MilTax is a program for members of the military.

• The IRS also has a partnership with certain tax software companies to provide lower-income taxpayers with free software to prepare their taxes and file their tax returns. Unlike the other programs that offer some professional assistance, this is a self-help program.

The IRS has free tools to find locations for these programs near you.

Let’s Summarize…

If you haven’t filed your tax returns for some years, but you want to get back on track, there’s no time like the present. Best case scenario would be that you’re still eligible for a tax refund and you receive some money. But if you find that you owe the IRS, keep in mind that you can negotiate your tax bill and/or apply for penalty abatement to make your payment more affordable.