Filing taxes might not be at the top of your to-do list each spring, but you should strongly consider it if you earn income—no matter how much or how little.
- Not everyone needs to file a tax return each year as several factors come into play when determining your filing requirements.
- Generally, if you earn less than the standard deduction for your applicable filing status, you don’t need to file unless you have special tax circumstances.
- Not filing a return when you should can result in penalties and fines from the IRS.
- It is better to file a late tax return than to not file one at all.
Do I have to file taxes?
The need for filing a tax return depends on several factors including your income type (from self-employment, through an employer or investments) and amount, tax filing status, age, and other factors.
Generally, not everyone needs to file a tax return each year. In fact, you won’t need to file a tax return unless your total income exceeds certain thresholds, or you meet specific filing requirements.
Typically, if your income is less than the standard deduction, you don't need to file a tax return. However, even if this is the case, you may still need to file a tax return if you meet certain conditions. For example, you'll likely need to file a tax return if any of the following are true for your situation:
- Earn more than the standard deduction for your filing status
- Have any special circumstances that require you to file (like earning $400 or more of net self-employment income)
- Have unearned income of more than $1,250 for 2023 as a child claimed as a dependent
If you meet any of these conditions, you likely need to file a tax return. These are just a few examples and other situations can require you to file a tax return.
However, in the event you are not required to file a tax return, you may still want to anyway. If you earned income during the year and had taxes withheld from your pay, to get any excess you’re owed back via a refund, you’ll need to file a tax refund. The IRS doesn’t automatically issue refunds if you’ve overpaid your tax bill each year. In that case, you want to file a tax return to claim any tax refund you may be entitled to claim.
For example, suppose you file as a single taxpayer who had $500 of federal income tax withheld from your $6,000 of earnings. You likely can get that money back since you earned less than the standard deduction for your applicable filing status. However, you can only get it by filing a tax return.
What happens if you file taxes late?
Generally speaking, the earlier you can file your return, the better.
If you are late to getting around to filing your tax return, you might receive a letter from the IRS requesting that you file one. Generally, the IRS systems will look at your income and withholding amounts and try to determine if you owe any tax. If the IRS thinks that you do owe money, then you will likely get a letter requesting that you file a tax return. The IRS typically has your income information it its systems based on what was reported on W-2 and 1099 forms.
If you owe money and fail to file your taxes on time, you’ll likely be assessed what’s called a Failure to File Penalty. The penalty is 5% of your unpaid tax liability for each month your return is late, up to 25% of your total unpaid taxes. In addition to this penalty, the IRS typically adds on interest based on how long your tax debt is outstanding.
What happens if you don’t file taxes?
If you need to file taxes but choose not to, the IRS has several means for bringing you to the table. Actions include, but are not limited to, assessing penalties, fines and interest, and assessing tax liens and levies.
Levies are different from liens. A lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes your property to satisfy the tax debt. A federal tax lien comes into being when the IRS assesses a tax against you and sends you a bill that you neglect or refuse to pay it.
If you’re due a refund, there’s no penalty for failure to file. Though, you do lose the chance of getting that refund if you wait too long. You have a limited period to claim that refund. If you haven’t filed an original return within 3 years of its due date, you've likely missed the statute of limitations entitling you to the chance of claiming that refund.
What happens if you pay taxes late?
If you filed a tax return on time but didn't pay any owed taxes when they were due, the IRS will likely assess a penalty on you.
The penalty for failing to pay taxes on time is based on how long your overdue taxes remain unpaid. Failing to pay is usually a lot less expensive than paying the penalty for failing to file: 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The IRS won’t typically assess a late payment penalty of more than 25% of your unpaid taxes, plus interest.
If you incur both penalties in the same month, the IRS will reduce the Failure to File Penalty by the amount of the Failure to Pay Penalty. For example, if you didn't file a return and pay your taxes for an entire month, the 5% Failure to File Penalty would be reduced by 0.5% but then you would be assessed the failure to pay penalty and a 5% net penalty would apply.
The IRS gets a bit more lenient if you missed your tax payment but filed your individual tax return and have an approved payment plan in place. In this case, the Failure to Pay Penalty is typically reduced to 0.25% per month (or partial month) during your approved payment plan.
The IRS applies full monthly charges on these penalties, even if you pay your taxes in full before the month ends.
After 60 days of failing to pay, your bill, in addition to the taxes you originally owed, will be a minimum of $485 (2023 tax year) or 100% of the tax required to be shown on the return, whichever is less.
If you do eventually file your taxes on time or pay the taxes you owe, you can request to have the penalty removed through calling or writing to the IRS through a process called abatement. Though, repeat offenders aren’t likely to have these requests approved. The IRS generally only allows you a pass on your first time missing deadlines under the First Time Penalty Abatement Policy.
Since the IRS doesn’t automatically issue refunds if you’ve overpaid your tax bill, you might want to file a tax return to claim any tax refund you may be entitled to receive.
Will you pay interest if you don’t file or pay taxes on time?
If you don’t pay your taxes on time, the IRS won't only assess penalties for not paying on time, they’ll also assess interest on your past due taxes as well. The IRS begins accruing interest starting on the date your original tax bill was due, often the federal tax filing deadline each year. The date is generally April 15, though it can move depending on where the date falls in a week.
To make matters worse, you might owe this interest not only on the unpaid tax balance the IRS states that you owe, but you may also have to pay interest on the penalty if you fail to pay that amount as well. To calculate the interest you owe to the IRS, the agency uses the federal short-term rate and then tacks on an additional 3%.
What happens if you refuse to file taxes?
If penalties and interest aren’t motivating enough and you outright refuse to file taxes, the IRS can enforce tax liens against your property or even pursue civil or criminal litigation against you until you pay. The severity of your refusal will determine the path the IRS will take.
Refusing to file taxes could result in the IRS filing a return for you. This return, called a substitute for return, isn’t always the most favorable for your situation. The IRS will use the information it has available (such as 1099 forms or your W-2) but won’t give you any additional tax credits or deductions that you might have used if you’d prepared your own tax return.
As a result, you’ll be set up to pay the maximum possible taxes while also paying the associated penalties for failing to file or pay on time, in addition to any interest charges you’ve accrued.
Should I file taxes even if I don’t have to?
While not everyone needs to file a tax return, based on 2020 tax year numbers, Americans filed nearly 170 million tax returns. Data shows that most Americans decide to file, even if they don’t need to file one.
If you have federal income taxes withheld from your paycheck, the only way you can receive a tax refund when too much was withheld is if you file a tax return.
You might also need to file to claim tax credits like the Earned Income Credit or for one-off events like the Recovery Rebate Credit, the payments better known as “stimulus checks,” which acted as advance refundable tax credits. Some refundable tax credits specifically require you to file a return, even if you don’t earn enough or meet another one of the other criteria used for determining your need to file a return.
What happens if you don’t file taxes and you don’t owe money?
You might think that because you don’t owe any money to the IRS that you don’t need to file a return. However, owing tax versus facing a filing requirement, are two separate situations in the eyes of the IRS.
The IRS maintains guidelines for determining who needs to file a return. Because of that, it could mean that even if you don't owe the IRS money, you may still need to file a return. The guidelines used by the IRS are based on the amount and type of income you receive and whether your income will fall below the standard deduction applicable to your filing status.
More often than not, you’re better off filing a return, even if you don’t need to. That way, you won’t run afoul of any IRS filing requirements, letting you avoid the penalties, interest and other consequences that come with not filing or paying your taxes on time.
What to do if you can’t pay your taxes right now
If money’s tight and you can’t afford to pay your taxes right now, the IRS offers payment options to spread out the time required to pay your taxes. You can set up a payment plan directly through the IRS website using their Online Payment Agreement tool.
To qualify, your specific tax situation will determine which payment options you can use. The available options include full payment, a short-term payment plan lasting 180 days or less, or a long-term payment plan or installment agreement that requires you to make monthly payments.
If you choose to pay upfront through the IRS Direct Pay portal, you won’t pay a setup fee nor will you need to pay future penalties or interest added to your balance. Under the short-term payment plan, you also won’t encounter a setup fee, but you'll need to pay accrued penalties and interest until the balance is paid in full.
If you elect to apply for a long-term payment plan through automatic withdrawals from your checking account, you'll pay $31 (unless you qualify as low-income, when the IRS will waive the fee) and, like the short-term payment plan, you'll pay accrued penalties and interest until the balance is paid in full.
If you opt for non-direct debit, you'll face a $130 installment agreement setup fee. If you need to revise an existing payment plan or reinstate after a default, you’ll be charged a $10 fee.
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