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Though some low-income Americans are technically not required to file a tax return, the IRS generally expects you to submit a return if you meet certain earnings thresholds.
And if you’re supposed to file taxes but don’t, the consequences can be costly. The IRS may charge you penalties and interest for each month you go without filing and don’t pay taxes due. Additionally, if you don’t file a return within three years of the due date, you may forfeit any refund you’re owed.
If you haven’t filed your most recent tax return, this is what you need to know.
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Can You File Your Taxes Late?
If you miss the annual tax deadline, which typically falls on April 15 (or Oct. 15, if you request an extension), you can still go ahead and file your return.
But if you haven’t filed in several years, the IRS will generally require you to file six years’ worth of back tax returns to be in tax compliance.
What Happens If I File My Taxes Late?
Filing a tax return late may bring risks that go beyond missing out on a tax refund you never claimed. Here are three of them.
1. Failure To File Penalty
If you don’t file your tax return in a timely manner, the IRS may assess a failure to file penalty. The size of the penalty is based on the amount of any unpaid taxes and how late the return is filed.
“Unpaid taxes” is the tax balance shown on your federal income tax return, minus any payments you made during the year, such as through withholding taxes.
The failure to file penalty is 5% of the unpaid taxes for each month or partial month the tax return is late. However, the IRS won’t charge a penalty greater than 25% of the unpaid tax amount. The IRS charges interest on the penalty, too.
2. Failure To Pay Penalty
A failure to pay penalty applies if you don’t pay the tax you report on a tax return by the due date or an approved extended due date. The penalty is calculated as a percentage of the taxes you didn’t pay: 0.5% of your unpaid taxes for each month the balance goes unpaid.
The maximum penalty the IRS can charge is 25% of your unpaid taxes. The IRS charges interest on the penalty here, too.
If you have to pay both a failure to file penalty and a failure to pay penalty in the same month, the IRS reduces the amount you owe. The combined penalty comes out to 5% for each month or part of a month your return was late.
For example, instead of hitting you with a 5% failure to file penalty for a month, the IRS will charge a 4.5% failure to file penalty and a 0.5% failure to pay penalty, for a total of 5% of your unpaid taxes.
3. Substitute Tax Return
In some instances, if you don’t file the IRS may file a tax return on your behalf, known as a substitute tax return. The IRS will use third-party income information, such as W-2 tax forms and 1099 forms, to create the return, but the agency won’t give you credit for tax deductions and credits you may be entitled to.
If the IRS does file a substitute return on your behalf, you’ll have 90 days to submit any past-due returns or file a petition with the U.S. Tax Court. Then, if you don’t take any action, the IRS will proceed with the substitute and charge you for any taxes due.
What If I Can’t Afford To Pay Taxes?
If you haven’t filed a return because you can’t afford to pay your taxes, you should contact the IRS to make an arrangement. The IRS provides these payment options:
- Short-term payment plans give you 180 days to pay your bill in full.
- Installment agreements allow you to make monthly payments over a longer period of time.
- An offer in compromise reduces your tax debt as part of an agreement with the IRS.
- “Not collectible” status defers your tax payments if you can’t afford to pay anything.
No matter the reason you haven’t filed, it’s always in your best interest to do so quickly. Filing past-due tax returns can limit the amount of interest and penalties you owe, and ensures you receive any tax refunds due.
How Late Can You Receive A Tax Refund?
If you expect a tax refund, you don’t want to wait too long to file your tax return.
The IRS typically allows you to claim a refund by submitting a return within three years of its due date. If you don’t file within that time frame, you may lose out on your refund.
For example, let’s say you never filed your 2019 tax return, which was due July 15, 2020. (The tax deadline was extended in 2020 due to the coronavirus pandemic.) If you think you should have received money back for 2019 but don’t file that year’s tax return by July 15, 2023, you’ll forfeit the refund.
And, keep in mind that you’ll still have to file a 2019 return if you meet the tax filing requirements. Today’s best tax software will help you get the job done.
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