What Happens If You Don’t File Taxes? Consequences, Exceptions, and Why Clear Your Past Due Payments?

If you are skipping your tax payments, it’s the right time to light up “What happens if you don’t file taxes?” in your brain. This becomes even more serious when you consider responsibilities tied to forms like K-1 filings and rules around how long to keep tax documents . You may need to face direct and long-term consequences, like high interest, no refund, summons, etc.

People think that making delays or not filing their tax return can be normal, and they can make their payment anytime they want, but this has several consequences, categorized into immediate and long-term. Even individuals connected with obligations such as Medicare tax or FITW tax withholding often underestimate how important timely filing really is.

So, dig deep into this and let’s see what happens if you don’t file taxes. 

What Happens If You Don’t File Taxes

If you are obliged to file your taxes, but you decide not to, in such cases, the IRS has several different means to bring the matter to the table. These consequences often intersect with common tax topics such as IRS Tax Topic 152, especially in refund-related cases. Let’s take a look at the different consequences in distinctive cases. 

Direct Effects

The immediate results of not filing your taxes are the inability to make further tax payments, increased interest on unpaid taxes, and no refund. Let’s understand in a deep context. 

• Failure to File Taxes: If you don’t pay your taxes for a long time, the IRS could hit you with failure in your tax returns. The situation gets more serious if you also handle forms like Form 5498 or Schedule E reporting, where accuracy is important.

• Increase in Interest on Unpaid Taxes: Along with the risk of failure to file your taxes, interest will also be charged on your unpaid taxes. So at last, you will be paying your tax, interest on the tax, penalty charges, and interest on the penalty charges. This becomes more complex when considering factors like marginal tax rate impact or adjusting investment-related tax amounts such as tax-loss harvesting.

• No Refund: Failing to pay your income tax can also result in the IRS seizing your state tax refund through the State Income Tax Levy Program. The IRS will also send you a notification about this. 

Long-term Effects

The long-term effects of not filing taxes could be issuing summons orders, processing wage garnishments, and tax liens and levies. 

• Wage garnishment: If you don’t file your taxes for a long time, the IRS can also implement wage garnishment. This directly affects how your taxable income is calculated and ultimately influences your marginal tax rate.

• Tax liens and levies: Along with this, the IRS can also further levy from you through their Federal Payment Levy Program (FPLP). This is closely tied to understanding real-world consequences like those seen in tax lien investing situations or property-based obligations such as ad valorem tax.

• Summons: Neglecting tax obligations can lead to receiving IRS summons. This can be even more complicated if you also deal with special assets, digital investments, or reporting supported through tools like a crypto tax calculator

These are the direct and long-term consequences if you are wondering what happens if you don’t file taxes. Snap out of your consequences for your situation and get ready for IRS actions.

Do I Need to File Taxes?

The answer depends on your income, sources, types, and age. This includes situations where taxable components such as gift tax rules or NIIT tax implications may apply.

If your income is more than a certain threshold, you need to file tax returns with the IRS. This threshold amount is termed the “standard deduction,” which is as follows: 

• Single: $15,750
• Married filing jointly: $31,500
• Married filing separately: $15,750
• Head of household: $23,625
• Qualifying surviving spouse: $31,500

Apart from having more income than the standard deduction, you also need to file a tax return if you have more than $1,350 of unearned income as a child claimed as a dependent and special circumstances like earning $400 or more of net self-employment income.

What Happens If I Delay Paying My Taxes?

Believe it or not, making delays in filing a tax return can be problematic and sometimes expensive. If you make delays on your tax return, you will get a letter from the IRS requesting you to file your tax return. Based on the information you provided on the W-2 and 1099 forms, the IRS keeps your data intact with them. This becomes crucial for those managing forms like Form 5498 or Schedule E related reporting where timely submission prevents discrepancies.

Since the first day of delay, your account will be reviewed as a failure to file penalty. After this, you will be penalized 5% on your unpaid tax liability for each month. This amount can be up to 25% of your tax liability. 

Special Cases and Exceptions for Delays in Filing Taxes

As per the IRS guidelines, the delays in tax return filings are acceptable in cases of natural disasters, armed forces personnel, disability or serious illness, system failure, international taxpayers, death of the taxpayer, and departmental errors. 

• Natural Disaster: If it is the case of federally declared disaster areas, the IRS grants automatic deadline extensions for taxpayers. Moreover, all the filings and payment penalties are suspended during this period. 

• Armed Forces Personnel: These deadline extensions are also available for deployed service members in combat zones. This extension is automatically granted and extended for certain military operations or hospitalized periods related to service.

• Serious Illness or Disability: No interest or any other kind of penalty will be charged if the taxpayer is in a medical emergency. But the taxpayer must report the cause to the IRS with proper documents. 

• System Failures: In case of malfunction of the IRS e-file or payment system near deadlines, an extension will be provided to the taxpayers to file their return with no penalties. 

• International Taxpayers: You also get an extension if you are a US citizen or resident living abroad. Unlike previous cases, a fixed 2-month period will be provided for filing tax returns. Remember that an interest may still be applied to the unpaid taxes beyond the original date. 

• Death of Taxpayer: In case the taxpayer dies, the IRS grants an extension to the legal heirs, executors, or surviving spouses to file the tax return. Moreover, they may receive a waiver on penalties in certain death circumstances. 

• Clerical or Departmental Errors: All the penalties will be removed if the cause of the delay is any kind of mistake or incorrect notice by the IRS. 

Why Should You File and Clear the Past-Due Tax Returns?

Clearing the past-due tax return can help you avoid penalties and interest, protect social security benefits, avoid delays in loan approval, and help in claiming tax refunds. 

• Avoid Penalties and Interest: The penalties and interest can be really hectic for taxpayers, as they are charged at 25% of tax liability and 5% per month, respectively. 

• Protect Social Security Benefits: Your self-employment income won’t be reported to the IRS if you work for yourself and don’t file a tax return. This means that this income will not be credited to your Social Security retirement and disability benefits.

• Avoid Delays in Loan Approval: Having a bad history of past-due tax returns can significantly affect your loan approval for a home mortgage, business loan, or federal higher education aid, as everyone needs to submit a copy of their tax filing for loan approval. 

• Claim Tax Refund: If a refund is due to you, it won’t be issued until you file the tax return for the relevant tax year. Tax refunds are withheld by the IRS until it receives the return or a valid reason for not filing the return.

How to Quickly Clear Out Your Tax Return Liability?

Use different methods like installment payments, credit cards, or an Offer in Compromise to make your tax return payment without any delays. 

• Installment Payment: The IRS allows taxpayers to make their payments for tax returns in installments through two payment options, such as a short-term payment plan and an installment agreement (long-term payment plan). You just need to use the Online Payment Agreement (OPA) tool on the IRS website.

• Use a Credit Card: Apart from the installment payment mode, you can also use your credit card to make a payment. But before that, remember that you need to use one of the IRS’s authorized third-party payment processors, as you can’t directly make a payment to the IRS with a credit card. 

• Requesting Offer in Compromise: The Offer-In-Compromise (OIC) is a program that allows certain taxpayers to resolve their tax debt with the IRS for an amount that is less than what they originally owed. 

Bottom Line

If “What happens if you don’t file taxes?” is running in your mind, the answer is immediate and long-term actions by the IRS that might go heavy on your pockets. These include penalties, no refund, failure to file taxes, summons, wage garnishment, and tax liens and levies. 

If you are not able to make payment for some time, look for special cases and exceptions that might land you an extension. If there is no scope for extension, switch to credit card payment, installment payment, and OIC.

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