Tax season 2024: What happens if you don’t file taxes?
If you owe taxes and don’t file by the deadline, you will be subject to penalties and interest on the unpaid amount.
The failure-to-pay penalty is 0.5% of the unpaid taxes per month, with a full monthly charge even if the taxpayer pays before the end of the month. For individual taxpayers, if a return is filed on time with an approved installment agreement, the penalty is 0.25% during the agreement period. However, if tax is not paid within 10 days of a notice of intent to levy or seize property the penalty is 1%. The penalty will be recurring until the tax is fully paid or until the maximum of 25% is reached.
In addition to the penalties, the IRS will start charging interest on any unpaid balance of taxes owed which will accrue and compound daily from 15 April until the balance is paid in full. The current interest rate for the for underpayments is 8% for corporate and non-corporate filers which is calculated using the federal short-term rate plus three percentage points. Any outstanding penalties will also accrue interest while they remain outstanding so it is vital that you complete your tax return on time.
What if I’m owed a refund, will I still be penalized?
There is no penalty for filing late if it turns out that you are owed a tax refund. However, the longer you wait to file the longer it will take to get your money back from the government. As well there is a three-year limitation to claim any tax refund that you have coming your way.
Likewise, taxpayers have three years to correct a tax return to claim any refund money they left on the table. If you file for an extension you will have from the date you filed your return with the IRS to claim any money you missed out on in your original filing. After the three-year period the federal government will keep any money that went unclaimed.
There are exceptions to the three-year refund rule. In the case of deductions for bad debt or worthless securities, taxpayers have seven years to claim a refund. The limit does not apply for those who are unable to manage their financial affairs due to physical or mental impairments.