I know, I know, filing your taxes isn’t fun. But the consequences can be worst. First you have the direct response of the IRS, and then there are all those other areas of life it will affect. Let’s look at what can happen if you don’t file your taxes, even for just one year.
1. The IRS Might Remind You
Believe it or not, the IRS may or may not send you letters reminding you to file. It will basically come down to whether the IRS thinks you owe money. Which is to say, if the IRS thinks you have a refund coming to you, they might NOT remind you. But if you do receive a notice…and don’t respond, the IRS may assume you are trying to evade taxes and take further action.
2. You’ll Face Penalties and Interest, maybe
If you owe nothing or expect a refund, you probably won’t be looking at any penalties. For the most part, IRS penalties and interest are based on the amount of tax you OWE for the year. The reality is that most folks that don’t file owe taxes. Here are the basic penalties you’ll eventually be facing:
- Failure to File Penalty – 5% of the unpaid taxes per month, up to 25%.
- Failure to Pay Penalty – 0.5% of the unpaid taxes per month, up to 25%.
- Interest – On top of penalties, the IRS will charge interest on what you owe, making your tax bill grow quickly.
3. The IRS May File a Return for You
If you don’t file, the IRS may prepare a tax return for you. Sound good? This would save you the trouble, right? Wrong. The IRS will calculate your tax due using the worst case scenario for everything.
This will result in the largest amount of tax due possible. The IRS has a special name for the returns it prepares: Substitute for Return (SFR). These SFRs are based on information from your employer, banks, and other sources. Watch out for these, they are the worst!
4. They Can Take Your Refund
If you’re owed a refund but don’t file, the IRS will be glad to keep your money. They probably won’t even tell you. Instead, they hold onto it and if you don’t file within three years, your refund is gone forever. 100% legal.
5. You Could Face Legal Trouble
For serious cases of tax evasion (not filing or otherwise avoiding tax), the IRS can pursue criminal charges, leading to hefty fines or even jail time. While rare, willfully avoiding taxes for years can result in severe consequences. (Ask me how I know)
6. Other LIFE Problems You May Face when you don’t Filing Taxes
Not having current year tax filings can lead to issues beyond the IRS troubles—it can create major roadblocks in your personal and financial life:
- Difficulty Getting Loans or Mortgages – Banks and lenders often require tax returns as proof of income. If you haven’t filed, good luck getting a mortgage with a resasonable interest rate.
- Issues with Employment – Many employers, especially for higher-paying jobs and those requiring security clearance, ask for tax records during background checks. Not filing taxes is a red flag.
- Problems Qualifying for Government Benefits – Programs like Social Security and Medicare use tax returns as a huge component in determining eligibility.
- Credit Score Impact – While tax debt itself doesn’t show up on credit reports, if the IRS places a lien on your assets for unpaid taxes, it can hurt your credit and make borrowing more difficult.
- Trouble Renting a Home – Some landlords ask for tax returns to verify income. Not having them could make renting a home much harder, although not insurmountable.
- Not Qualifying for Student Loans and College Assistance – If you or your child is applying for financial aid, you must provide tax returns when completing the Free Application for Federal Student Aid (FAFSA). Without them, you may not qualify for federal student loans, grants, or scholarships. Many colleges also require tax returns for need-based assistance.
- Stress and Anxiety – Ignoring tax obligations can lead to ongoing stress, knowing that the IRS could be just around the corner. I talk to folks every week who tell me this. The unknown can take a toll on your personal well-being.
What Should You Do If You Haven’t Filed?
If you’ve missed a tax return (or several), don’t panic! It may not be as bad as you think. The best course of action is to file as soon as possible to minimize penalties. If you can’t pay what you owe, the IRS offers options like payment plans and offers in compromise to help you settle your debt.
Need help filing past-due taxes? Tax Rescue CPA can guide you through the process and get you back on track. Contact us today and avoid the headaches of IRS trouble!
“Who’s Doing Your Taxes?” – Tax Rescue CPA
