Here’s What the Penalty for Failure to File Taxes Is

Failure to File Taxes

With tax season upon us, many people are curious as to what the failure to file taxes penalty is. You see, while most of us (un)happily file our income taxes at the beginning of each year, many taxpayers fail to do so, and it means bad things. No; not always truthful. Sometimes the IRS doesn’t care that you don’t file your income tax returns. If they owe you money, they don’t care if you never file – though they are not going to track you down and offer you a refund. In fact, they will most likely go ahead and cap your limit to file to a few years before you are no longer eligible to receive that refund you are owed.

On the other hand, they will come after you if you do not file. Failure to file taxes is a big deal, and it’s one that can cost you a pretty penny. That said, let’s get down to answering your question and figuring out what failure to file taxes penalty you might face if you do not file.

  1. Criminal Charges – The IRS has six years after a return is due to file criminal charges against anyone who does not file their incomes taxes. However, if you are past the six year mark and feeling pretty good about things, stop. They do have forever to collect your taxes if you owe them, as well as assess any fees and penalties for failure to file taxes. That’s forever as in, forever.
  2. Failure to File Taxes Penalty – If you are negligent in filing your income taxes, you will then pay a fine that is known as the failure to file fine. It’s a big one, too. It can increase your bill as much as 25%; sometimes even more than that.
  3. Interest Charges – If you do not pay your taxes, the IRS can go ahead and charge you a penalty of up to .5% of what you owe on a monthly basis. This means you will pay that additional interest on those charges until you pay that bill off for good.
  4. Substitute Returns – The IRS sometimes has all that they think they need to file your income taxes for you, and they will not hesitate to do so. You might think that this takes the pressure off of you, but the IRS is not about to itemize or use any of your deductions, so you will pay far more than you owe and they are not going to refund you that money by any means.
  5. No Refund – We said it above; you have three years to file income tax returns that are due a refund if you want to collect. If you do not file those returns to collect those refunds within two years, you are not going to get the money that is owed to you by the IRS. They are cutting you off after those three years are up.

Why File?

Some people are not interested in filing income tax returns because they owe nothing but they are only getting a few dollars back. Many taxpayers are happy to forgo a $16 income tax refund if it means they don’t have to bother with all that tax information. However, there is a good reason to go ahead and file regardless. You see, you are going to find it quite difficult to apply for things like student aid or even mortgages and business loans if you have no income taxes filed to prove your income. It might sound like something that doesn’t bother you much, but it’s really going to bother you significantly when you decide that you are going to open that business and can’t because you are not approved for a loan thanks to not filing any tax returns in years.

Additionally, not filing your income taxes means big problems for you later on down the road. If ever you find yourself applying for Medicare, Social Security or even unemployment insurance, you will find that you cannot do it without a tax return filed for the years you were younger. You can do it, but the benefits you receive will be significantly smaller as you did not file. The issue is that you are going to find that the IRS and these other government agencies use your past income tax returns to calculate your earnings and payouts. File them now, or face the consequences later on.

Late Fees

You might not believe it, but late fees really do add up. They add up to the point that they are going to make your life miserable if you don’t pay taxes. And they start accumulating the second that you neglect to file. Let’s say that you owe money to the IRS and you make the decision to file an extension of time so that you can save up a bit more and pay your income taxes in that manner. Extensions are perfectly legal, right?

You have to file an extension with an estimated tax payment included as a guesstimate of what you owe the IRS this year. Otherwise, you begin incurring late fees the second tax deadline day is over, and they are hefty fees in almost every situation.

Payment Arrangements

The IRS knows that not everyone can afford to pay their income taxes all at once when they owe. For this reason, they are happy to have you contact them and make arrangements for payment of your debts. They might give you a no-interest extension of time that provides you with 120 days to pay the balance due without incurring fines or fees. They might allow you to pay over time as much as you can without hurting your financial situation even more. They might even allow you to go ahead and give you a temporary delay on the collection of the amount that you owe. This does not exempt you from incurring penalties and interest on your account, but it does help you to have more time to pay.

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