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Haven’t Filed Taxes in Years? Consequences by Year

10 years unfiled taxesIf you haven’t filed taxes for several years, it could lead to some severe consequences. You could lose your chance to claim your tax refund or end up owing the IRS thousands in back taxes, penalties, and interest. Fortunately, you can still file past due tax returns and may be able to resolve some of these issues.

Table of Contents

Overview of Basic IRS filing requirements

You are only required to file a tax return if you meet specific requirements in a given tax year. The most common reason people need to file is when they earn over the income filing threshold. For the 2018 tax year, these amounts were as follows:

  1. $12,000 for single filers or married filing separate returns
  2. $18,000 for head of household filers
  3. $24,000 for married taxpayers filing jointly

These amounts changed with the passage of the Tax Cuts and Jobs Act and have fluctuated over the years. You’ll need to find the income filing threshold for the appropriate tax year to determine if you had a filing requirement. For example, use the 2016 income filing threshold to decide whether or not you should have filed a tax return in 2016.

You may still need to file a return even when you earn less than the filing threshold amount. Some other reasons you may need (or want) to file include the following:

  1. Self-employment earnings of $400 or more.
  2. Advanced premium tax credits throughout the year.
  3. Qualify to receive a refundable tax credit.
  4. Owed a tax refund because you had taxes withheld from your paycheck or you made estimated tax payments.

You must file your tax return by the deadline set by the IRS each year, typically around April 15th.

Unfiled Taxes Last Year: Missed the IRS Tax Return Filing Deadline

The repercussions for failing to file a tax return depend on whether you owe taxes or are due a refund. You also have the option to request a six-month tax filing extension if you’re going to miss the deadline.

If You Are Due a Refund

Good news—you won’t owe any penalties if you are due a refund on your tax return. You should still file as soon as possible because you can’t receive your refund check unless you file. If you don’t file within three years of the return’s due date, the IRS will keep your refund money forever.

It’s possible that the IRS could think you owe taxes for the year, especially if you are claiming many deductions. The IRS will receive your W-2 or 1099 from your employer(s). However, the IRS won’t know about your itemized deductions or business expense deductions until you file, so they could come after you if they think you should have sent them a check for taxes owed.

You can prevent this issue by filing your return as soon as possible. You can also get an automatic six-month filing extension by submitting Form 4868, as long as you file on or before the due date of the tax filing deadline.

If You Owe Taxes

You could owe both the failure-to-file (FTF) and failure-to-pay (FTP) penalties as soon as your return is a single day late. The FTF penalty is 5% of the taxes owed per month, and the FTP penalty is 0.5% of the taxes owed. However, there are ways to avoid or minimize these penalties.

You can postpone the assessment of the FTF penalty by requesting a six-month filing extension. The extension will give you until around October 15th to file your return. After that, the IRS will assess the FTF penalty if you still haven’t filed.

Even if you request an extension, you’ll still owe the FTP penalty unless you’ve paid at least 90% of your tax liability for the year. You can estimate this amount and send the IRS some money when you submit your filing extension to minimize the FTP penalty.

The IRS will continue to assess these penalties—along with interest—each month that your return is past due and your tax bill is unpaid. Eventually, the IRS may become more aggressive if you don’t respond to their requests for payment.

Haven’t Filed Taxes in 2 Years

If You Are Due a Refund

The clock is ticking on your chance to claim your refund. You should file your returns for both tax years to make sure the IRS doesn’t get to keep your tax refund check.

If the IRS thinks you may owe for these tax years, you may have received one or more notices from the IRS by now. Once the IRS assesses tax against you, they can begin seeking collection, which could eventually result in a levy of your bank account or garnishment of your wages.

If You Owe Taxes

You may be receiving IRS notices in the mail, and penalties and interest will continue to add onto your bill. The IRS may also decide to file a Substitute for Return (SFR) on your behalf.

The SFR usually claims you owe more in taxes than you should. That’s because the IRS is using your W-2 or 1099 to determine your income, but they have no way to calculate your potential deductions or credits. So you could miss out on some significant tax breaks. In fact, the SFR only provides the taxpayer with the standard deduction and one exemption.

The statute of limitations for the IRS to collect taxes—which is generally ten years—also doesn’t begin until you file your return. That means the IRS has more time to seize your assets for unpaid tax debt.

Even if you can’t afford to pay off your full tax bill right now, you should file your delinquent returns right away.

Haven’t Filed Taxes in 3 Years

If You Are Due a Refund

At three years, this is your last chance to claim your tax refund money! Remember—once it’s been three years from the due date of the tax return, you no longer have the right to claim your tax refund. Not only can’t you claim the money, but the IRS also won’t credit your account for the refund amount or apply it to a future return.

The IRS may have sent you notices informing you that they have not received your tax return. If they think you may owe taxes for one or more tax years, they could assess tax on your account if you don’t respond to these notices. After that, the IRS sends your account to collections, and your assets, income, or credit rating could be at risk.

If You Owe Taxes

You could face any or all of the following consequences:

  1. Late payment penalties, failure to file penalties, and interest could substantially increase the amount you owe to the IRS.
  2. The IRS can file an SFR on your behalf that doesn’t give you the deductions and credits you’re entitled to receive.
  3. When the IRS files the SFR, they assess tax against you, and the collections process begins. You could receive an intent to levy notice informing you that the IRS may seize assets. An intent to levy notice means they can take funds from your bank account or a portion of your wages.
  4. A federal tax lien can be filed against your property, making it difficult to sell, refinance, or borrow against your assets.

Your tax problems can start to spiral out of control at this point because the amount you owe is growing and the IRS is proceeding further along in the collections process. You may feel as though your trapped and don’t know how to regain control of your financial situation.

Haven’t Filed Taxes in 5 Years

If You Are Due a Refund

It’s too late to claim your refund for returns due more than three years ago. However, you can still claim your refund for any returns from the past three years. Don’t let the IRS keep any more of your money!

If You Owe Taxes

There’s a good chance that the IRS has noticed that you have unfiled returns. An SFR may have been filed for several tax years, the tax has been assessed, and your account is in collections. A Notice of Federal Tax Lien may have been filed to notify other credits of the IRS claim against your property.

You probably owe the IRS more money than you can pay back at once. There are payment plan options as well as tax debt settlement options you should consider. The IRS requires taxpayers who use these programs to file all delinquent tax returns, and you may need assistance from a tax professional with this process.

Criminal tax prosecution isn’t typical, but it is a possibility if the IRS believes you’ve been willfully evading the tax laws. These cases can result in huge fines and even jail time.

Haven’t Filed Taxes in 10 Years

If You Are Due a Refund

You can’t seek a refund for the returns that more than three years ago. You can—and should—still file your past three years of tax returns.

If You Owe Taxes

IRS collections have probably been hounding you for several years. You may feel that there’s no way you could even file all your back tax returns, much less pay off ten years worth of tax debt, plus penalties and interest.

The IRS has most likely filed a Notice of Federal Tax Lien and attempted to seize one or more of your assets. You could even have your passport revoked if your tax debt is certified to the State Department as seriously delinquent.

Your tax problems won’t just go away. The IRS only has ten years to collect from taxpayers, but the clock doesn’t start ticking until you file a tax return or the IRS files for you (aka SFR). If you haven’t done one of those things, the IRS has unlimited time to keep trying to collect from you.

Talk to a tax professional about your options. You will probably need help filing a decade or more of late tax returns. You can also discuss your payment options, which could include installment agreements, Offers in Compromise, Hardship, or penalty abatement.

How to File Past Due Tax Returns

It can take a lot of work to find the information you need to file past due tax returns for several years. You may want to contact a tax professional for help and to make sure you don’t make any mistakes.

For more information, visit our page on how to file unfiled tax returns.