What Happens if You Forgot to File Your Taxes?

File Your Taxes

Usually, Tax Day falls on April 15 every year. If you somehow forgot to file for your taxes, there is no need to panic. The world does not end if you do not file on time. However, there are financial consequences that depend on your circumstances.

The Silver Lining

Strictly speaking, you are not legally required to file for your taxes if;

  • You owe ZERO dollars in taxes to the IRS
  • You qualify for a refund

In both of these cases, there is no penalty if you do not file for your tax return.

Keep in mind: You can only file for a refund within 3 years. Otherwise, you forfeit that amount to the IRS.

Failure-to-File vs. Failure-to-Pay

Some people file their tax returns but they lack the funds to pay it in full. Comparatively speaking, the people who cannot pay but still file are in a much more favorable position compared to those who do not file at all.

1. Failure-to-Pay

When you do not pay the full or partial amount, you will receive monthly financial penalties in terms of 0.5% of your total tax return for your filing. This penalty maxes out at 5%. The interests on the unpaid bills continue to accrue the day after the deadline until you clear the bill.

The charged amount is based on the federal short-term interest rate plus 3%. This rate is set every three months. The current federal short term rate is 2%. This means, you will pay 2% + 3% = 5% of your tax return. Your rate of interest can also change if the short term rate increases.

The less you owe, the less you will be charged in penalties.

2. Failure-to-File

When you do not file at all, the IRS can impose penalties upon you. The late filing fee is 5% of your total tax bill. This penalty maxes out at 25%. If you fail to file for additional 60 days after the deadline, you will be charged the lesser amount of $210 or 100% of your unpaid taxes.

The IRS can waive the penalties for extenuating circumstances. The following individuals have more time to file and pay;

  • Disaster victims
  • Military service personnel in combat zones
  • Eligible support personnel in combat zones
  • U.S. citizens and resident foreigners that live and work outside the U.S. and Puerto Rico

Penalty Abatement for the First Time Offenders

For your failure to pay on time, you may get an abatement of the penalties if you are a first-time offender. To qualify for this provision, you must;

  1. Not have received any penalties in the last 3 annual tax seasons
  2. Have filed the returns on time, or timely applied for extensions when you did not
  3. Set up a payment plan for any due taxes

The 90% Rule for Waiver of Penalties

You will receive no waiver if you pay the government 90% or above of your total tax bill through;

  • Paycheck withholdings through the employer
  • Quarterly estimated tax payments
  • Or a combination of the two

What’s the Worst That Could Happen?

The penalties for late filing get continuously stricter the more you delay. The penalties can accrue up to 25% of your total tax bill. This means, if your total bill is $1,000, then your penalty can go up to $250.
If you continue to ignore the warnings and still do not file, your penalty could become double your tax bill after 60 days. If you will continue to ignore your bills and the IRS, then even stricter steps will be taken against you. The government can;

  • Garnish your wages directly from your paycheck
  • Place liens on any property or properties you own
  • Start an audit
  • File formal charges against you that can potentially result in jail-time

Bottom Line

This is what happens when you do not file for your taxes. Your reasons for not filing do matter. If you have a genuine excuse, then the penalties are waived. If your reasons are not genuine, then your life becomes difficult.
It is not the end of the world. However, the bigger the delay in responding to the IRS, the greater penalties can be imposed against you. It is for the best if you always file on time. Make it a habit and do your best to never lose it.

The best thing to do is to start compiling your documents and arranging your numbers the day the new tax year begins. It will allow you to relax at the end of the financial year. Everyone around you will be flapping around like headless chickens, while you will be relaxing and being amused. Your tax preparer or personal accountant can be of immense help in this regard. Follow their advice.