Benjamin Franklin said it himself: taxes will always be a guarantee in life. The government is counting on it. So if you don’t file your taxes by this year’s July 15th deadline, what happens?
It’s important to understand the consequences of forgetting or neglecting to file your taxes. Fortunately, the IRS provides plenty of opportunities to catch up on your missed filings before serious punishments occur.
Who Does and Doesn’t Have to File?
Every year, the Internal Revenue Service (IRS) processes more than 150 million individual tax returns. Yet not all adults are required to file their taxes. It all depends on income, dependency status, and filing status.
The minimum income required to file a tax return in 2020 depends on factors like age and filing status. If you make less than the minimum, you may not be required to file a Federal Tax Return:
- Minimum of $12,200 W-2 income or $400 self-employment income for single adults under the age of 65.
- Minimum of $13,850 W-2 income or $400 self-employment income for single adults over the age of 65
- Minimum of $18,350 W-2 income or $400 self-employment income for the head of household under the age of 65
- Minimum of $20,000 W-2 income for $400 self-employment income for the head of household over the age of 65
- Minimum of $24,400 W-2 income or $400 self-employment income for married spouses filing jointly when both are under the age of 65
- Minimum of $25,700 W-2 income or $400 self-employment income for married spouses filing jointly when one spouse is over the age of 65
- Minimum of $27,000 W-2 income or $400 self-employment income for married spouses filing jointly when both spouses are over the age of 65
As you can see, the minimum income required to necessitate filing a tax return varies greatly based upon age, type of income, and filing status. These numbers also change each tax season.
Negative Effects of Not Filing
Sure, filing taxes can be a pain. It’s often confusing, complicated, and stressful. But it’s worth the few hours of your time to prevent the potential negative effects of not filing at all.
If you fail to file your tax return on time, the IRS can (and will) penalize you for a late filing fee. The fee changes annually, but you can expect to pay at least 5% of the taxes you owe for each month past tax day that you fail to file. The penalty is capped at 25%.
If you fail to file your taxes at all or at least file for an extension, those penalties accrue to potentially double your tax bill. The IRS won’t let you do this for free. Eventually, you’ll be at risk of a wage garnishment, property liens, and jail time.
Why You Should File, Even If You Can’t Pay
Oddly enough, the government imposes higher penalties for failure-to-file than it does for failure-to-pay.
As you read above, failure-to-file results in a fee of at least 5% of the taxes you owe for each month past tax day that you fail to file. The penalty is capped at 25%.
Failure-to-pay, on the other hand, accrues a monthly penalty of 0.5% of your total tax bill as a penalty. This fee also maxes out at 25% of your tax bill, though interest can accrue over and above.
As a result, it makes sense to file, even if you can’t pay immediately. You can reduce your penalty by paying as much as possible on time or over the next few months. In fact, if you have paid 80% to 90% of your balance due on Tax Day, the IRS may not penalize you at all for paying the remaining portion late.
The bottom line? Do as much as you can to keep your tax filings on the straight and narrow. It’ll save you money, hassle, and anxiety of IRS punishments.