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There are no penalties for late tax filings if the IRS owes you money. However, if you owe them, things can escalate quickly. Here’s what you need to understand and act on if you’ve missed filing your taxes for multiple years.
First, if you believe you're entitled to a refund, your main concern should be that you're missing out on money. But this opportunity won’t last forever—you have only three years to claim what the IRS owes you. Since there’s no penalty for filing late if you don’t owe any taxes, you should act fast to recover that money.
But let’s say you haven't filed and you owe money. Or perhaps you've filed but haven't paid your dues. Either way, you could find yourself in serious trouble with the IRS.
What occurs if you fail to pay your taxes
Not paying your overdue taxes is technically classified as a misdemeanor, and according to Cornell Law School’s Legal Information Institute, it could lead to imprisonment for up to a year. However, it’s important to note that jail time is rare. As David Cawley, a certified public accountant (CPA) and partner at Fraim, Cawley & Company, CPAs, told LendingTree:
If you commit tax fraud by either falsifying information on your tax returns or failing to file your returns, you may face criminal charges. However, taxpayers are not sent to jail simply for lacking the funds to settle their taxes.
More often than not, you’ll be required to pay penalties and interest on the taxes you owe. The penalties for failing to file are particularly severe. The IRS imposes a penalty of up to 5% per month on the unpaid amount, with a maximum of 25%. In addition, you’ll incur interest on any taxes left unpaid after the deadline (check the latest update on this IRS page for the current rate) as well as a 0.5% failure-to-pay penalty for each month you don’t pay, up to 25%.
To break it down further, two types of penalties are at play. The "Failure to File" penalty charges you 5% of your total unpaid taxes each month (or part of a month) that your tax return is delayed. Additionally, the "Failure to Pay" penalty charges 0.5% of your unpaid taxes each month (or part of a month) they remain unpaid. If both penalties apply in the same month, the combined penalty will be 5% (4.5% for late filing and 0.5% for late payment) for each month or part of a month that your return is overdue, capping at 25%. The IRS provides a full description of their late filing fees and penalties here.
Once you miss your payment, the IRS will send you a letter. They’ll send you at least two billing notices before the collections process begins, and that is when things can get really ugly: The IRS can freeze your bank accounts, garnish your wages, and even put a lien on your house. While the government has up to six years to criminally charge you with failing to file, there’s no time limit on how long the IRS can go after you for unpaid taxes.
What to do if you missed filing and/or have unpaid taxes
There are some circumstances in which the IRS might waive these penalties, although you’ll still have to pay what you owe. You need to prove “reasonable cause,” as outlined on the IRS website:
Making a good faith payment as soon as you can may help to establish that your initial failure to pay timely was due to reasonable cause and not willful neglect. If you’re billed for penalty charges and you have reasonable cause for abatement of the penalty, send your explanation along with the bill to your service center, or call us at 800-829-1040 for assistance. The IRS doesn’t generally abate interest charges and they continue to accrue until all assessed tax, penalties, and interest are fully paid.
The IRS offers a few “typical situations” where you may be able to claim:
Fire, accidents, natural disasters, or other disruptions
Inability to access necessary records
Death, critical illness, incapacitation, or unavoidable absence of the taxpayer or an immediate family member
Any other circumstance that proves you took all reasonable steps to fulfill your Federal tax responsibilities but were still unable to do so
In any of these situations, you will need to submit proof (such as court documents or a doctor’s letter). Afterward, you'll have to file returns for all the years you've missed. Gather any old pay stubs, 1099 forms, or W-2s you have. If you’re missing some of the information required to file, you’ll need to estimate your income, deductions, filing status, etc. You may also be able to request a transcript from the IRS to obtain details from any W-2s or 1099s that your employer submitted on your behalf.
Once you’ve filed your returns for the years you’ve missed, it's time to pay your overdue taxes and penalties. If you can't pay in full, the IRS provides both short-term (120 days or less) and long-term payment plans. Long-term plans have specific fees, which can be found here.
If paying your back taxes and penalties in full is not an option, you may want to reach out to the IRS to set up an installment agreement. Additionally, there is an option called an ‘offer in compromise,’ where you request that the IRS accepts less than what you owe.
Take these immediate actions if you haven't filed your taxes for years
The penalties and stress associated with unfiled taxes will only increase over time. Here are some immediate actions you can take to resolve the situation:
Collect your forms and income records. Gather all necessary documents, such as W2s, 1099s, and payroll records for the years you haven’t filed. If you don’t have the records, you’ll need to estimate your income.
Select your filing method. You can file overdue returns by mail, use IRS tax filing software, or work with a tax professional. A tax professional can help ensure you get the most deductions and communicate with the IRS on your behalf.
File your returns in chronological order. Begin with the oldest unfiled return and work your way up to the most recent one. Make sure to use the correct forms and deduction rules for each tax year. Send each return separately once completed.
Pay your owed taxes. Calculate the taxes owed on your unfiled returns, or contact the IRS to set up a payment plan if you can't pay in full. Remember, interest and penalties will continue to accrue until your balance is settled.
Follow up on your filings. After submitting your returns, follow up after a few weeks to ensure the IRS has received them. Be sure to respond quickly if they have any questions or request adjustments.
Stay compliant moving forward. To avoid future issues, ensure you file your annual returns on time by the April deadline. Stay organized by keeping your tax records and documents together year-round.
Consider amending past returns. Once you’re in compliance, you may want to consult a tax professional to determine if amending prior returns could help you recover refunds or reduce any outstanding liabilities.
