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There’s no penalty for submitting your taxes late if the INTERNAL REVENUE SERVICE owes you money. But if you owe them cash, things can get very ugly, extremely fast. Here’s what you need to know—and do—if a person haven’t filed your taxes within years.
First, if you feel you’re due a refund, most of your concern should be that you are leaving cash on the table. A surprising number of people miss out on cash they’re owed, as $1. five billion in unclaimed refunds stay outstanding as of last July, based on the IRS . But the opportunity to claim your share of that cash doesn’t last forever—you only have the three-year window. Since there’s simply no penalty for filing a past due return, you’ll definitely want to do if you are owed money.
But let’s state you haven’t file and you owe cash. Or maybe you filed but haven’t paid what you owe. Either way, you could be struggling with the IRS.
What happens if you don’t pay your own taxes
Technically, not paying your own past-due taxes is considered a misdemeanor and you could be sent to prison for about a year, according to Cornell Law School’s Legal Information Institute . However , more commonly you’ll just have to pay out penalties and interest on the fees you owe—but that can add up rapidly.
Going to prison is very unlikely, as David Cawley, a certified public accountant (CPA) plus partner at Fraim, Cawley & Company, CPAS, explained to LendingTree :
“If you commit tax scams by either lying on your taxation statements or not filing your returns completely, you may be subject to criminal charges, yet taxpayers will never go to jail because of not having enough money to pay their own taxes. ”
The government might be more lenient with regards to jail time, but the penalties for not submitting are significant. The IRS costs up to 5% per month on what your debt, up to a maximum of 25%. You also have to pay for interest (check for the latest upgrade on this IRS page for the current rate) along with a failure-to-pay penalty that’s zero. 5% of your unpaid taxes for every month you don’t pay all of them, up to as much as 25%. The INTERNAL REVENUE SERVICE has a full description of their past due filing fees and penalties here .
When you miss your payment, the INTERNAL REVENUE SERVICE will send you a letter. They’ll send at least two billing notices prior to the collections process begins , and that is when things can get fairly ugly. The IRS can deep freeze your bank accounts, garnish your income, and even put a lien on your own house. While the government has as much as six years to criminally ask you for with failing to file, there’s almost no time limit on how long the INTERNAL REVENUE SERVICE can go after you for unpaid fees.
The right way to fix it
There are some circumstances in which the INTERNAL REVENUE SERVICE might waive your penalties, even though you’ll still have to pay what you owe. You have to prove “reasonable cause, ” because outlined on the IRS site :
Making a good faith transaction as soon as you can may help to establish that the initial failure to pay timely has been due to reasonable cause and not willful neglect. If you’re billed for charges and you have reasonable cause meant for abatement of the penalty, send your own explanation along with the bill to your assistance center, or call us at 800-829-1040 for assistance. The IRS does not generally abate interest charges plus they continue to accrue until all evaluated tax, penalties, and interest are usually fully paid.
The IRS offers a few “typical situations” where you may be able to claim:
- Fire, casualty, natural disaster or even other disturbances
- Incapability to obtain records
- Loss of life, serious illness, incapacitation or inescapable absence of the taxpayer or a person in the taxpayer’s immediate family
- Other reason which determines that you used all ordinary company care and prudence to meet your own Federal tax obligations but had been nevertheless unable to do so
Note: while not formally listed on the IRS page, it appears as if the COVID-19 pandemic may be used as a reasonable cause as it connections into disaster relief, according to Management Today .
In any of these situations, you’ll likely need to provide paperwork (such as court records or a notice from a physician). Once you’re prepared to file and pay, you’ll wish to file returns for every year you have missed. If you have old pay slip, 1099s, or W-2s, obviously you will want to gather as much of that documents as you can. If you don’t have all of the info you need to file, you’ll have to provide your very best guesses about your income, deductions, submitting status, and so on. You might also be able to request a transcript from your IRS to obtain information from any W-2s or even 1099s an employer filed on your behalf.
Once the returns for each yr you’ve been delinquent are submitted, pay off your back taxes and fines. The IRS offers short-term (120 days or less) and extensive payment plans if you can’t pay out it all at once. There are set costs for long-term payment plans, an index of which can be found here .
If you can not afford your back taxes and fines, consider contacting the IRS to exercise an installment plan. There’s furthermore something called an “ offer in compromise, ” which is a request to think about accepting less than the full amount owed.
This post was initially published in 2017 and had been updated on October 15, 2020 to provide more current information regarding taxes and the pandemic.