What Happens If You Don't File Your Taxes For Five Years

Filing taxes is complex. If you’re not an accountant, your life doesn’t revolve around the fluctuations that happen with tax legislation, and until tax season, you’re not concerned about the different forms you need to file. It’s why it can be intimidating when it comes to file your taxes. 

Procrastinating and forgetting to file your taxes each year can be an easy path to fall down. After all, there may be circumstances where you’re not required to file taxes. But what happens when you don’t fall in that category? If you’ve missed filing taxes for years, this blog can help you understand the next steps you should take. 

Do I need to file taxes? 

Whether or not you need to file your taxes depends on a few variables: your income, employment, age, and filing status. 

The Tax Policy Center estimates that 40% of households in the U.S. won’t pay federal income tax in 2022. If you earned less than the standard deduction, it is unlikely that you’ll need to file a return this tax season. If all of the following apply to you, you can join the 40% of Americans who won’t submit a return: 

• You’re younger than 65 years old.
• Earn below the 2022 standard deduction for your filing status, which is $12,950 if you’re single or married filing separately; $25,900 if you’re married filing jointly or a qualified widower; $19,400 if you’re a head of household; if you’re at least 65-years-old or blind, you can claim an additional $1,400 for your standard deduction, and it’s doubled if you’re both blind and older than 65.
• You’re self-employed but did not meet the $400 threshold.
• You’re a child or dependent that did not receive more than $1,150 in unearned income.

How do I avoid filing taxes late? 

Your best bet for ensuring your tax return is in the IRS’s hands before the tax deadline is filing your tax return early. The IRS efile tax season starts in January and continues through April. 

We know how difficult it can be to file your taxes. They get more complicated each year. If you want to ensure your return is filed early, it’s best to get a Tax Pro’s help. They’re the ones with the experience and knowledge you need to have your taxes filed on time without the hassle of doing the work yourself. 

However, if you are nearing the end of tax season and don’t have the time to file it yourself or with a Tax Pro, it’s best to get an extension. It’ll give you time until later in the year to get your taxes filed without incurring penalties. Be aware that the deadline to apply for an extension is the last day of tax season, and the IRS won’t accept electronic extension requests after their deadline. 

What happens if I don’t file taxes? 

The majority of Americans need to file a tax return each year. Sometimes, that responsibility slips through the cracks. What does this mean for you? You must follow these steps to ensure you don’t get into further trouble with the IRS. 

What happens first? 

The IRS is aware even if you didn’t file a tax return. Your employer would have notified the agency, and if you receive payment through online transaction services like PayPal and Venmo, they’re required to send you a Form 1099-K. 

If you missed the tax deadline, the IRS will send you a notice advising that your taxes are overdue. This means that you are legally obligated to meet with the agency to determine your tax liability. If you fail to do so, they will take a deeper look into your tax history to see if there are any overt fraud cases. 

Expect penalties

At this point, your wallet won’t remain safe. The IRS will want to get back what it’s owed and instill a lesson that you learn for the future. The penalties for failing to file a tax return are: 

• A failure to file penalty of 5% of the unpaid tax obligation for each month your return is late. This penalty will not exceed 25% of total unpaid taxes and the failure to file penalty will max out after five months.
• A failure to pay penalty may also be applied.
• After 60 days, you'll owe a minimum Failure to File Penalty of $435, or 100% of the tax required to be shown on the return, whichever is less.

You’ll need to pay interest

Beginning the day the taxes you owe are due, you may have to pay interest on what’s owed, penalties, and interest on the penalties. The IRS calculates interest using the fluctuating federal short-term interest rate plus 3%. The interest owed on penalties is 0.5% for each month. 

You may lose your refund

When you file your taxes each year, there may be times when you don’t need to pay taxes and will break even or receive a refund. There is no penalty for failing to file for a refund. However, missing the deadline means that you may lose your opportunity to earn money back from the IRS if the refunds have a statute of limitations that has expired. 

In most cases, a refund will be granted if an original return claiming a refund is filed within three years of its due date. The refund statute prevents the issuance of a refund check and the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid after the three-year period expires. However, the IRS's statute of limitations for assessing and collecting any outstanding balances begins once a return is filed. In other words, if no return is filed, there is no statute of limitations for assessing and collecting the tax.

What happens if I don’t file my taxes for years? 

If you haven’t filed your taxes for years, you may have received notices from the IRS in the mail and will continue to rack up penalties until the matter is settled. Once the IRS determines what it’s owed, it can begin seeking collection, which could result in a levy of your bank account, or your wages can be collected. The IRS may also file a substitute return for you, a less friendly tax return that doesn’t take into account credits or refunds you otherwise would have claimed had your return been filed during the given tax year. Even if you don’t have all the money to pay your overdue return and penalties, you should still file a delinquent return as soon as possible. 

The statute of limitations for the IRS to collect what it’s owed is ten years, starting from the date taxes are owed. If you haven’t paid your taxes for years, the IRS will begin enforcing punishments on you. 

After a few years of unpaid taxes, the IRS would have made several attempts to collect what they are owed. The collection process begins when the IRS files a substitute return for you. The IRS may begin seizing assets, funds from your accounts, and collecting a portion of your wages. A federal tax lien can be filed against your property, making it difficult to finance your assets. 

The most important thing to understand is that the longer you prolong paying your taxes, the more likely criminal charges will be brought up against you, and you receive enormous fines. 

How can Taxfyle help? 

Don’t procrastinate filing your taxes. Missing the chance to get an extension and failing to meet the deadline could mean your wallet takes a hit. 

We know that filing taxes isn’t the easiest task to complete. We have a network of thousands of CPAs and EAs across the country who have the knowledge and experience to file your taxes. Filing with one of our Tax Professionals is the stress-free way to file a tax return because our Tax Professionals do the work for you. 

This tax season, give the work to an expert.