The April 18th tax deadline passed, and you did not file your tax return. Now what? First, don’t panic. Not everyone needs to file a tax return. Typically, if you earn less than the standard deduction associated with your filing status, you do not need to file a return. However, if you did not file a tax return when you were required to, you might have an issue. Here’s what happens if you don’t file your taxes.
You will be charged a Failure to File penalty.
If you did not file a tax return when you were required to, the IRS will charge you a Failure to File penalty. This penalty is currently 5% of the unpaid taxes for each month or partial month that a tax return is late, up to 25% of your total unpaid tax bill. If you are due to receive a tax refund, then you will not receive a penalty for failing to file. However, not filing may result in losing that refund. Keep in mind, a tax refund can be only claimed within 3 years of its due date.
You will be charged a Failure to Pay penalty.
If you owe taxes and don’t file your return, you will be penalized for failing to pay. In 2024, the Failure to Pay penalty is 0.5% for each month or partial month your tax balance goes unpaid, up to 25% of your total tax bill. If both a Failure to Pay and a Failure to File penalty are applied in the same month, the Failure to File penalty will be reduced by the amount of the Failure to Pay penalty applied in that month. For example, instead of a 5% Failure to File penalty for the month, the IRS would apply a 4.5% Failure to File penalty and a 0.5% Failure to Pay penalty.
Your tax bill will accrue interest.
If you do not file your taxes, the IRS will assess interest on your unpaid taxes. This is even if you do not receive a Failure to File penalty. Even worse, the IRS begins accruing this interest beginning on the date your taxes are due, which is April 15th in 2024. If you receive the Failure to File penalty, you will also incur interest on your unpaid taxes. Underpayment interest rates can change each quarter. The interest rate through June 2023 is 7% per year, the highest it has ever been. This essentially means that having a tax balance is more expensive than ever.
The IRS may file a return on your behalf.
In some cases, the IRS will file a substitute tax return on your behalf. They do this using tax documents that were sent to them from your employers and financial institutions. What they will not do, however, is try to reduce your tax liability with credits and deductions. If you still take no action, the IRS will continue processing the return and charge you any taxes owed.
The IRS statute of limitations is delayed.
Some may think that they can avoid filing a tax return for many years and the IRS will lose its power to enforce after the 10-year statute of limitations ends. However, the statute of limitations does not begin until a tax return is actually filed. This means that the unfiled tax return will essentially follow you until you file it. If you wait too long though, you risk losing out on refunds and tax credits.
What Should I Do If I Didn’t File My Taxes?
The simple answer to this question is to file immediately. The tax deadline has passed, and so has the deadline to request a tax extension. However, penalties and interest will be minimized if you file a tax return now. Some taxpayers do not file because they know they cannot afford to pay taxes they owe, but not filing and not paying only escalates the issue at hand. If you need help with your tax debt, tax relief is always an option. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
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