What happens if you don’t file taxes?

Key takeaways

• There are three items to consider when you owe tax and do not file your tax return by the due date: the Failure to File penalty, the Failure to Pay penalty and interest on unpaid tax.
• If you owe tax and don’t file, the IRS can impose a 5% penalty on the unpaid tax for each month (up to 25%), which increases the amount you owe.
• The minimum penalty for filing your tax return more than 60 days late is either $485 or 100% of the amount you owe, whichever is less.
• The IRS also charges a 0.5% penalty each month (up to 25%) if you fail to pay the tax you owe by the deadline.
• In addition to penalties for failing to file and failing to pay, the IRS charges interest on any tax you don’t pay.
• When you fail to file your tax return or pay your tax on time, the IRS will send you notices to alert you about the situation. If you ignore these notices, the IRS may use levies or liens to collect the money you owe.
• Work with a Tax Pro who can help you set up a payment plan with an IRS and explore options to resolve or reduce penalties, levies, or liens.

Failure to File penalty

If you owe tax and don’t file your tax return, the IRS can charge you a penalty, which adds to what you owe. This penalty starts adding up right after you miss the tax filing deadline and can grow quickly if you don’t file.

This Failure to File penalty is 5% of your unpaid tax for each month your return is late, up to five months or a maximum penalty of 25%.

Keep in mind that if you file your return even one day late in a month, the IRS considers that a full month for penalty purposes. For example, if you file your return on May 1, instead of April 15, the IRS will charge you a penalty for the entire month of May.

Failure to File penalty calculation

Let’s say you owe $2,000 in tax and you filed your tax return three months late. Here's how you would calculate your Failure to File penalty.

First, figure out your monthly penalty by multiplying the amount you owe by 5%.

$2,000×0.05=$100

Next, multiply the monthly penalty by the number of months you’re late to file.

$100×3=$300

In this scenario, you would owe an additional $300 as a Failure to File penalty on top of the $2,000 you owed.

Remember, the maximum penalty is 25% of your unpaid tax. So, if you owe $2,000, the maximum penalty would be 25% of $2,000, which equals $500.

Minimum penalty for not filing taxes

The minimum penalty for filing your tax return more than 60 days late is either $485 or 100% of the amount you owe in tax, whichever is less. For example, if you owe $300 and file your return 70 days late, your penalty will be $300. If you owe $1,000 and file your return 70 days late, your penalty will be $485.

Failure to Pay penalty

In addition to the penalty for failing to file your tax return on time, the IRS also charges a penalty for failing to pay the tax you owe by the deadline.

The Failure to Pay penalty is 0.5% of your unpaid tax for each month (or part of a month) that you haven’t paid after the due date. This penalty continues to add up until you’ve paid your tax in full, or the penalty reaches the 25% maximum.

If you make partial payments on your tax debt, the IRS will calculate the penalty based on the amount remaining. This can help reduce the overall penalty amount if you can make payments over time.

To avoid the Failure to Pay penalty, pay as much as you can by the tax due date. If you can’t pay the tax you owe, think about setting up a payment plan with the IRS to minimize penalties and interest.

Failure to Pay calculation

Suppose you owe $1,000 in tax and you are unable to pay by the due date. Here's how to calculate your Failure to Pay penalty for a six-month period.

First, multiply the amount you owe by 0.5% to arrive at your monthly penalty.

$1,000×0.005=$5

Then, multiple your monthly penalty by the number of months you’re late to pay.

$5×6=$30

If you take six months to pay the $1,000, you will incur a $30 Failure to Pay penalty in addition to the $1,000 you owe.

Interest on unpaid taxes

In addition to penalties for failing to file and failing to pay, the IRS charges interest on any tax that hasn’t been paid. This interest can significantly increase the amount you owe over time.

IRS interest on the amount you fail to pay starts adding up from the day your tax return is due (typically April 15) until the date you pay your tax in full. The IRS calculates interest daily. That means that the longer you delay payment, the more interest you'll owe.

The interest rate on unpaid tax is the federal short-term rate plus 3%. The IRS updates this rate every three months, so it can change throughout the year. For the first three quarters of 2024, the annual interest rate for unpaid tax is 8%.

Keep in mind that the interest rate is compounded daily. That means interest is charged on the interest that you’ve already been charged. This compounding effect can make your debt grow quickly if you don't address it.

Interest on unpaid taxes calculation

Let’s say you owe $1,000 in tax and you pay 45 days late. Here’s how to calculate the interest you owe.

First, find the daily interest rate by dividing the 8% annual rate by the number of days in a year, 3650.

08÷365=0.00021918

Next, multiply the tax you owe by the daily interest rate and the number of days you’re late to pay.

$1,000×0.00021918×45=$9.86

If you pay your $1,000 tax bill 45 days late, you’ll owe an additional $9.86 in interest.

IRS notices for not filing or not paying

When you fail to file your tax return or pay your tax, the IRS will send you notices to alert you about the situation. This consists of a bill outlining what you owe, including tax, penalties, and interest. If you ignore these notices, it can lead to serious consequences, including levies and liens, which can affect both your financial stability and credit score.

IRS levies

An IRS levy is when the government seizes your property to pay off your tax debt. This may include garnishing your wages, taking money directly from your bank accounts, or taking and selling your property, such as a car or real estate. The IRS uses levies as a last resort.

If you don’t respond to the initial notices, the IRS will send this final notice at least 30 days before they impose a levy.

If you receive a final notice of intent to levy, you can…

• Pay the amount due: This stops the levy process.
• Request a payment plan: Set up an installment agreement to pay your debt over time.
• File for an Offer in Compromise: You may be able to settle your tax debt for less than the full amount you owe if you qualify.
• Request a hearing: This gives you the opportunity to talk about your situation with an independent officer and propose alternatives to the levy.

IRS liens

If you don’t respond to the initial notices or pay your tax by the due date, the IRS may file a Notice of Federal Tax Lien. An IRS lien is a legal claim against your personal property, real estate, and financial accounts to collect the tax you owe.

How can an IRS lien affect you?

• A lien can lower your credit score, which makes it harder to get approved loans or credit.
• It may be difficult to sell or refinance your property when a lien is attached to your assets.
• If you own a business, the lien can attach to its assets, including accounts receivable.

If you receive a notice about a tax lien, you can…

• Pay your debt in full: This will release the lien within 30 days.
• Set up a payment plan: Setting up an installment agreement can sometimes result in the withdrawal of the lien.
• Request a lien withdrawal: If you meet certain conditions, you can request that the IRS withdraw the lien, which removes it from public records.

Seek professional help from Jackson Hewitt to avoid penalties.

Whether you’re facing a tax bill you can’t afford to pay, or you already have IRS penalties and interest, a levy, or a lien, you don’t have to work it out alone. The Jackson Hewitt Tax Pros can help you explore payment plans and resolution options with the IRS to reduce or avoid penalties.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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