What happens if i dont file taxes in time

Insider's experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page.

• Filing a federal tax return by the deadline — typically April 15 — is an annual tradition for most Americans.
• But failing to file a tax return can result in additional costs in the form of penalties, and interest.
• While not everyone needs to file, you should determine your status to avoid penalties.
• See Personal Finance Insider's picks for the best tax software »

Filing a tax return can be an arduous process. That's one of the reasons that Americans spend so much time and money filing their tax returns. And with so many changes — some proposed — to tax rules and regulations over the past few years, it's understandable.

But how do you even know if you need to file a tax return? Given that avoiding filing taxes altogether could potentially save you some time, money, and stress, forgoing the annual tradition can be an attractive option. However, there are consequences for failing to file a tax return that you should be aware of.

First, determine whether you need to file taxes

First things first: Do you even need to file a tax return? It's worth it to take the time to find out. For reference, many Americans do not pay income tax — in 2020, more than 60% of households did not, an increase from roughly 44% in 2019, in part due to pandemic-related issues. In short, not everyone needs to file a federal tax return.

It mostly comes down to your filing status, and how much money income you earned over the course of the year, and it's on you to figure it all out.

"The tax system is one of self-appraisal," says David Beck, a Dix Hills, NY-based CPA. "The government relies on you to tell the truth, to pay your taxes, and file a return." And those taxes need to be paid, and a return filed, by the tax deadline — which is April 15, during most years. 

So, how do you know if you need to file a tax return? There are a lot of things to take into consideration, so it may be best to consult a professional before you decide to stand pat. Here are some general guidelines to help you make the determination:

• If your gross income for the year is less than the standard deduction of $12,400 ($12,550 for 2021) for a single filer, $18,800 for Head of Household, or $24,800 ($25,100 for 2021) for married (filing jointly) filers, you do not need to file a tax return. You are required to file a tax return if you have $400 or more in net self-employment income. Your standard deduction is limited if you are claimed as a dependent on someone else's tax return.
• If you are 65 or older, the minimum income threshold for single filers is slightly more: $14,050 ($14,250 for 2021). For people who are married and filing jointly, it's $27,400 ($27,800 if both 65 or older for 2021).
• You can do a basic determination by comparing your gross income to the standard deduction. "If your income is less than the standard deduction, there's no filing requirement," says Beck.

Use Personal Finance Insider's calculator to estimate your refund, or how much you owe, in a few easy steps

What is your filing status?

Single

Married, filling jointly

Married, filing separately

Head of household

How old were you on January 1?

What was your household income before taxes?

How much money did you contribute to your 401(k)?

How much money did you contribute to your Traditional IRA?

How many dependents are you claiming?

We’ve pre-filled this with a standard deduction based on your filing status

We estimate that you will owe $0

Estimated federal taxes

$0

While not everyone needs to file a tax return every year, many, if not most people will. But what happens if you don't file a tax return when you are required to? Several things will happen, although it may take some time. Here's what you can expect if you don't file taxes:

1. You'll receive a summons from the IRS

If you forget, or otherwise neglect to file a tax return, you can expect to receive a summons from the IRS — sort of a not-so-friendly reminder. Just because you didn't tell the IRS you earned money in the past year doesn't mean that your employer didn't!

If you do receive a summons, it'll be a part of the IRS collection process — that means that the IRS believes you do, in fact, owe taxes. The IRS will send you a summons via snail mail, and it will legally compel you to meet with the IRS to try and determine your tax liability. 

But Beck says it's possible that you won't hear anything. However, if the IRS finds that there's been "willful neglect to file a return" on your part, the IRS can then look at your entire tax history in search of fraud — whereas typically, the IRS would only look at the past three years. So, that's something to be aware of.

2. You'll be charged failure to file penalties 

The IRS will also hit you where it hurts: Your wallet. Again, you'll receive notice that you're being hit with a penalty by mail, and there are a number of reasons that you could potentially incur a penalty. 

But generally, for failing to file a tax return, penalties are calculated as such:

• A Failure to File Penalty of 5% of the unpaid tax obligation for each month your return is late (won't exceed 25% of total unpaid taxes.
• A Failure to Pay Penalty may also be applied (and potentially reduce the Failure to File Penalty if affecting the same months).
• The Failure to File Penalty will max out after five months.
• 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," according to the IRS.

3. You'll pay interest 

Interest is in the mix, too, for those who fail to file a tax return. You'll accrue interest starting on the due date of the amount you owe, or when your tax return was due. So, you may end up paying interest on your unpaid tax, and then have to pay a penalty, plus interest on that penalty. 

The IRS uses the federal short-term rate (which fluctuates), plus 3%, to determine how much interest you'll owe on your unpaid taxes. Failure to Pay Penalty interest is equal to 0.5% for each month. 

4. You'll lose your state tax refund

It's also possible that the IRS may levy (i.e., seize your funds) your state tax refund through the State Income Tax Levy Program (SITLP). The levy is meant to offset the federal taxes you may owe. In this case, the state should send you a notification of the levy, and the IRS will, too, after it takes the funds, giving you the chance to appeal.

5. Your federal payments might be affected

There's also the chance that further levies could be enacted—through the Federal Payment Levy Program (FPLP). This program allows the IRS to enact a continuous levy on specific federal payments in order to collect overdue taxes. 

These are the payments that could possibly be levied under the program:

• Federal employee retirement annuities: If you were a federal employee, certain annuities may be subject to levies. 
• Federal payments made to you: If you were or are a federal contractor or vendor doing business with the government, these payments may be levied. Also, if you're a federal employee, your salary may be levied.
• Travel advances or reimbursements: If you're a federal employee, reimbursements for travel costs may be withheld.
• Social Security benefits: Certain benefits can be levied.
• Others: Among the other funds that can be levied, per the IRS, are Medicare provider and supplier payments, benefits paid out by the Railroad Retirement Board, and by the Military Retirement Fund.

If you need more time to file 

If you are aware that you need to file a return, and simply need more time to do it, you can always file for an extension. It's pretty straightforward: You will need to submit Form 4868 to the IRS, either online, or by mail by the filing deadline.

But remember that if you think that you'll end up owing the government money, you'll need to send the IRS a payment by the tax deadline regardless of whether you file an extension. You'll need to make an estimation of your liability when you submit your extension. If you don't think you can pay the full amount due, don't let that stop you from filing your return on time. You can file your return even if you cannot pay the full amount due and request an installment agreement. If you think you're getting a refund, though, there's no need to pay, just fill out and submit the extension form.  

The financial takeaway

Filing a tax return can be stressful. But it's often a lot scarier than it sounds — for most people, anyway. If you remember to make a reasonable effort to determine whether you even need to file, and then carve out an afternoon to fill out the correct paperwork, it may not even cost you a penny to file. In fact, it may net you a refund.

Just remember: Neglecting to file a return could end up costing you more down the road than if you just bite the bullet, take the time, and file by the tax deadline. "Everyone hates it, but you gotta do it," says Beck.

Sam Becker is a writer and journalist, specializing in personal finance, business, and investing. He has worked with and for fintech firms, financial media companies, and founded two small businesses. A native of the Pacific Northwest, Sam is a graduate of Washington State University. You can connect with Sam on Linkedin or Twitter.

Read more Read less

Do you get penalized for not filing taxes on time?

What happens if you miss the tax deadline 2022?