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It’s the time of year when increasingly sweaty Americans dig through desk drawers and couch cushions in search of receipts, struggle with convoluted math, and check to see when their local post office is closing. That’s right: It’s tax season, the least wonderful time of the year.
It’s been more than a century since the United States began collecting income taxes on an annual basis (there had been short-term income taxes before), and yet the entire population seems shocked to discover they have to pay taxes again this year, just like they have every year of their adult lives. The news will start running stories about folks literally filling out their tax forms in the post office at two minutes to midnight, and a general sense of panic will suffuse the entire country as people struggle to understand the concept of marginal tax rates, which is apparently right up there with particle physics in terms of complexity.
The filing deadline for federal taxes is April 18 this year. If you haven’t begun the process of organizing your returns, you might be wondering if you can get away with filing late—or not filing at all. The answer depends a lot on your definition of “getting away with something,” because both options come with serious downsides.
Some considerations before ignoring the tax deadline
Before we go any further, you should keep in mind that there is an easy and perfectly legal way to file your taxes late: File for an extension. You have until Tax Day to file form 4868, which automatically gives you a 6-month extension, so your new due date would be October 15. If you already know there’s no way you’re going to get your act together in time to file your taxes, simply filling out this form buys you time to get organized. This also applies to state taxes, by the way. Each state has its own policies, but in general, you can contact your state tax authority and file a form for an extension with them.
Also note that if you’re having trouble filing because you’re currently living outside the U.S. or serving in the military, you might have an automatic extension. The IRS also offers extensions to people affected by natural disasters.
Also, note that there’s a difference between failing to file and failing to pay. In general, the IRS is fairly forgiving about the latter as long as you do the former. The penalties associated with failing to pay your taxes are a lot higher than the penalties for failing to file, and the IRS will usually work out a payment plan or otherwise work with you to pay your tax bill if you’re in financial straits. In other words, the smart play is always to file your taxes and figure out the rest later.
What happens if you file your taxes late?
Of course, not all of us are living our best lives, and things can get away from us. So what happens if you file your taxes, just not anywhere near on time? It’s key to file your return, no matter how late. This can avoid failure-to-file penalties at the very least, and clear you of any suspicion that you’re attempting criminal tax evasion, because at least you’re acknowledging your tax debt.
The IRS isn’t unreasonable when it comes to failure to file or pay. If you submit a sensible explanation for your lateness (in writing) there’s a very good chance it will relent and waive the penalties. You’ll get a notice from the IRS about your failure to pay that will include a number to call. Give it a ring, and they’ll let you know how to proceed with your explanation letter.
Also, if you know you’re getting a refund, the IRS usually won’t penalize you for a late return, since it owes you money. But you still have to file a return within three years to get your refund. After that, you forfeit anything the government owes you.
You need to know about interest, penalties, and garnishments. Since your return is late, so is your payment. The IRS will charge you interest on unpaid balances and will sock you with some penalties. Interest starts accruing from the due date (April 18th this year) until you pay your balance. For anyone who isn’t a corporation (which are legally considered people, but are treated much better by the federal government), the interest rate is 3%.
There will also be a late payment penalty, which starts at 0.5% of your tax bill per month, with an upper limit of 25% (on top of the tax you owe and the interest charged on that). If you negotiate an installment plan, the penalty rate is cut in half to 0.25%. Eventually, the IRS will issue a notice that they intend to seize property to satisfy the bill, and ten days after that, the penalty rate increases to 1%. If you filed for an extension and missed that deadline, the penalty jumps to 5%.
Eventually, the IRS will also probably garnish your wages to pay off your tax bill, going straight to your employer and snatching the money out of your paycheck before it even reaches you.
So there’s really zero upside to filing late—even if your finances are a mess, your best bet is to file and figure out the payment later. But what if you decide to say “nah” to taxes in general?
Here’s what happens if you don’t file taxes at all
Without your tax dollars, the federal government would cease to exist. As you might imagine, they’re pretty determined to get your money. Here’s what happens if you simply don’t file your taxes at all:
- You can face criminal charges. The federal government doesn’t often charge people with tax evasion and pursue criminal cases—but “not often” isn’t the same as “never.” In 2015, for example, 1,330 people were indicted for tax evasion. It has a six-year period to charge you; after that you’re legally in the clear. But plot twist! The IRS can collect the taxes you owe and impose penalties on you forever, no matter its decision on criminal charges.
- You’ll get interest and penalties. The IRS will start hitting you with penalties the day your taxes are due. The aforementioned failure-to-file penalty kicks off the festivities (unless you’ve submitted a reasonable explanation for your lack of a return), but there will also be failure-to-pay penalties. Similar to the failure-to-file penalty, the failure-to-pay starts off at 0.5% of your tax bill, and maxes out at 25%—but keep in mind this is in addition to the failure-to-file charges. As noted above, the IRS can seize property, garnish wages, and place liens on your home in their pursuit of your money. You’ll also lose out on any refunds you might be owed if you don’t file within three years.
- Your credit can be impacted. Tax liens don’t appear on credit reports, so there’s no direct impact on your credit score if you try to weasel out of paying your taxes. Still, creditors usually search public records in addition to checking your credit score, and if they see liens from the federal government they will run, not walk, away from you and your loan application.
- They’ll file for you. If you think you’re being clever by not filing your taxes, the IRS has a surprise in store for you: They can, and often do, file on your behalf using whatever information they have. W-2 forms, for example, are supplied to the IRS, so if you worked a job, they probably already know how much you earned (why they can’t just do our taxes for us is a whole other issue). After dodging your taxes—or thinking you dodged them—you might get a letter in the mail cheerfully informing you that your taxes are done and you owe a certain amount, which will be a much worse number because the IRS isn’t going to bother with credits, deductions, or other tax breaks you might have been eligible for.
Not filing or paying your taxes comes with a hefty cost, but it’s easy to avoid simply by obeying the law and filing in good faith.
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