Failing to File a Tax Return — Legal & Financial Consequences

If you fail to file a tax return by the appropriate date, whether intentionally or inadvertently, you can face serious consequences. To minimize the penalties, you should make sure to file the overdue return as soon as possible, while paying any taxes that you owe. If you delay in filing the return, you will face increasing interest rates because interest starts being calculated on the date that the return was due. Some taxpayers feel that they should not file the return until they are able to pay all of the tax that they owe, but this is not a smart decision. Even if you cannot pay everything, you should pay the amount that you can afford to pay so that you minimize the penalties and interest that you accumulate.

Sometimes a taxpayer can set up an installment agreement with the IRS to pay any remaining owed taxes and penalties in monthly installments. You can request this arrangement online if you owe a total of no more than $50,000 in any overdue taxes, interest, and penalties. However, to be eligible for an installment agreement, a taxpayer must file all of their returns and get caught up on estimated tax payments.

Consequences of Failing to File a Tax Return

Interest will be added to the amount of tax that was unpaid. This will be calculated as 0.5 percent of the tax owed for each month or part of a month that the taxpayer did not pay the tax after it was due. Interest will continue increasing until the taxpayer pays the full amount that is owed or until it reaches 25 percent, which is the ceiling on interest for tax debt. If the IRS sends you a notice of intent to levy, and you fail to pay the owed tax within 10 days of the notice being issued, the interest rate will increase to one percent.

The IRS will assess additional penalties for filing a tax return late. The penalty generally consists of five percent of the tax that you owe for each month, or part of a month that the return is late, capped at 25 percent. However, you will need to pay a minimum penalty consisting of a certain dollar amount (which varies by year) or 100 percent of the tax owed, whichever is less, if you file a return over 60 days after the deadline.

Self-employed taxpayers who fail to file a tax return will not receive credits for the purposes of Social Security benefits, including both retirement benefits and disability benefits. This is because they failed to report any self-employment income, which is essential for receiving work credits.

IRS Response

If you fail to file a tax return, the IRS may file a substitute return that contains information that it has found from other sources. Since the IRS may not apply all of the appropriate deductions, exemptions, and credits, you may find that you owe more taxes on the substitute return than you would have owed if you had filed your own return. After filing the substitute return, the IRS will pursue collections efforts against a taxpayer. They might seek to garnish their wages or levy from a bank account, or they might place a tax lien on their property, depending on the nature of a taxpayer’s assets.

Last reviewed October 2024