The Consequences Of Not Filing Taxes

Let's face it: no one likes to file their taxes each year, even if they're owed a refund. The process can be daunting and it can take a long time to gather information and enter it into tax software or make an appointment with your accountant. But for those who have years of unfiled tax returns, the IRS can hit you with some serious penalties. Here are some of the very real consequences you may face if you have not filed your annual tax return for one year or even many years.

Penalties And Interest

The IRS expects every citizen to file their taxes each year. If you fail to do so, you'll be hit with some stiff penalties once you finally do file if the IRS determines that you owe. In most cases, the first step will be to take any income tax refunds due to you as part of repayment towards the balance owed. The IRS will also typically add predetermined, flat penalty fees on top of any interest charges on the balance. This amount will either come out of your refund when you do file, or the IRS can even garnish your wages if you fail to pay. For every year you don't file, you can also be hit with interest that accumulates over time. The rate of interest owed on back taxes can vary but it's typically determined based on the current federal interest rate.


For people with years of unfiled returns, the IRS can take your refund and apply it to any taxes you owe. This means that even if you've finally filed taxes, the money you might be owed will go right back to the IRS to pay for any fees and penalties. Another serious implication of failing to file is a process known as the Federal Payment Levy Program. This means your hard-earned social security or other federal-related income could be partially forfeited in order to repay any money you owe. It's recommended that you respond to any and all correspondence received from the IRS in a timely manner to avoid having money taken from you directly. 

Tax Liens

If you have not paid or filed owed taxes and you're not responding to the IRS, they could impose a federal tax lien. In a nutshell, this means that the IRS now has the right to seize your property including your home or vehicles. In order to avoid this very serious repercussion, you'd have to prove that you're currently suffering an economic hardship. To do that, you'll have to provide the IRS with information regarding your current income and expenses so they can determine that you're unable to pay for the taxes owed and seizing your property would result in an even more serious inability to maintain living expenses. Unfiled and unpaid taxes can also negatively affect your credit report and could even result in a summons. When it comes to filing taxes, it's imperative that you do so each year to avoid these serious financial headaches.