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What Happens if I Don’t File a Tax Return?

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Infrastructure, healthcare, security, education — you name it, the government depends on your tax dollars to keep the country running. As such, it’s understandable why the Internal Revenue Service would push citizens to pay taxes. However, you might not always keep up with your tax obligations. It’s not uncommon for taxpayers to miss their filing deadline. When this happens, you should know the right steps to follow to be in the good books of the IRS.

What Happens if You Don’t File a Tax Return

Before asking what happens if I don’t file taxes, understand whether you should submit returns in the first place. For example, too many deductions could write off your taxable income. Another exemption is for low-income earners — you don’t have to file taxes when your income falls below the standard deduction. If you’re not sure whether you should submit returns, the IRS offers the Interactive Tax Assistant to verify your filing status. So what is the outcome if I don’t file my tax return?

  1. Penalties 

In addition to what you already owe, filing delays invite a fine of 5% of the unpaid tax liability per month. This penalty caps at 25%. After two months, the IRS could impose an extra 100% of your liability or $435 depending on what is less. Note that the government may overlook the failure to submit penalties in case of a natural disaster, the death of a loved one, or military commitments.

  1. Interest

Outstanding taxes attract interest from the first day of default. The interest follows short-term federal rates, on top of an additional 3%. Because the IRS revises these rates every three months, your interest might rise or fall depending on your repayment duration. Remember, interest compounds daily until your bill is settled.

  1. IRS Summons

IRS summons are directives to provide information through physical or virtual meetings. You may hide your earnings from the IRS, but this doesn’t mean your employer will play along. In most cases, the IRS starts by issuing a notice. If you ignore it, the IRS might post a delinquency letter before summoning you. You can present yourself for the summon or hire professional representation.

  1. Impact on Federal Payments and State Tax Refunds

The Federal Levy Program allows for additional penalties on overdue taxes. For example, the government can recover unpaid taxes by withholding travel reimbursements for federal employees or levying retirement annuities, salaries, and social security benefits. What’s more, the IRS could use the State Income Tax Levy Program to offset federal taxes.

What to Do if You Didn’t File a Tax Return

All is not lost if you haven’t submitted returns. Here’s how to save your situation.

  1. Calculate Your Overdue Taxes

Knowing your outstanding debt is the first step to fulfilling your tax obligations. If you’re unsure of the figures, you can request the IRS for transcripts, regardless of how long you defaulted. 

  1. Proceed to File

Ask your employer for your tax records and file your returns. After submitting the returns, you might discover a refund that slashes your bill. Even if you cannot manage to pay all your overdue taxes, filing what you can afford reduces penalties and interest. 

  1. Negotiate a Payment Plan

The IRS is open to a payment plan if you cannot submit everything at once. Individual taxpayers have three payment options. Apart from full payment, you can apply for the short-term plan which gives you up to 180 days. Alternatively, you could choose the installment agreement that allows monthly payments.

Consult an Expert

You might not always understand your financial situation. A tax professional will calculate your outstanding taxes and suggest the way forward. They could also negotiate with tax agencies on your behalf for a favorable payment plan.

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