What Happens If I Haven’t Filed My Taxes?

Posted on Credit 1018

The April 18th tax deadline has passed…did you file your taxes?  If you didn’t, the consequences are worse than if you simply couldn’t pay your taxes.  There are huge penalties to pay.  It can result in fine up to a $25,000 and a one year prison sentence for each un-filed tax year. Typically, the IRS won’t send people to jail for un-filed returns.

Disadvantages of not filing

  • Will not get a refund or Earned Income Tax Credit, if it has been over 3 years from the date you should have filed
  • Pay penalties, fees and interest plus the tax
  • Won’t receive credits toward Social Security retirement or disability benefits, if self employed and income won’t be reported to Social Security Administration.

Many think if they haven’t been contacted by the IRS in a year or two, they are safe. That is not true; there is a normal lag in time frame for the IRS to follow up. The IRS uses a system called the Information Returns Program (IRP), which matches W-2 wage statements and 1099 income reports from the employers against tax returns filed. When the system doesn’t find a match, a Taxpayer Delinquency investigation begins. Notices are sent to your last address and if no response, an IRS employee takes over the investigation.

You are classified as non-criminal or criminal non-filer. Non-criminal non-filer is the most common and is contacted by phone or letter and given 30 days to file your return.  If you don’t file, the IRS agent will file a substitute return for you which won’t include all your deductions, credits or exemptions. You can file a return and the IRS will make the adjustments.   Criminal non-filer is visited by a criminal investigator, if you haven’t reported several hundred thousand dollars of income. You could have money or property seized by the IRS.

You have to pay penalties and interest on the time frame that you didn’t file.  Penalties begin after the date the taxes are due which would be April 16 (it was April 17 in 2011).  A 5% penalty is calculated on the original amount of taxes owed each month and is increase 5% each month until it reaches the maximum of 25% in five months. Taxes not filed within 60 days of the due date, the minimum penalty is the lesser of $135 or 100% of the unpaid amount. The penalty for tax fraud is increased to 15% a month and maxes out at 75%.

If you owe money to the IRS, they can collect it for 10 years from the date the amount was finalized. which is usually when you file or unless something comes up in an audit.. The IRS can start the collection process on unpaid taxes, which could involve garnishing wages, tax liens and taking money from bank accounts.

As they say, two things that you can count on are death and taxes.  You are penalized more if you don’t file, because this is over and above the amount you owe.  The IRS will eventually find you.  If you owe taxes, it is better to file and then work out a payment plan.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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