Can I Skip a Year of Filing Taxes?

Whether you can skip a year of filing taxes depends on various individualized factors. Failing to file a required tax return can lead to significant financial and legal consequences, making it important to understand your responsibilities.

Conditions for Mandatory Filing

Individuals are legally required to file a federal income tax return if their gross income exceeds specific thresholds, which vary based on filing status, age, and whether they are claimed as a dependent. For instance, in 2024, a single filer under age 65 generally needs to file if their gross income is at least $14,600. These thresholds increase for those aged 65 or older; a single filer aged 65 or older might have a higher threshold of $16,550.

Certain types of income or specific situations also trigger a mandatory filing requirement, regardless of the total income amount. If you are self-employed and have net earnings of $400 or more, you must file a tax return. Additionally, filing is required if you owe special taxes, such as the alternative minimum tax, or if you received advance payments of the Premium Tax Credit.

Situations Where Filing is Advisable

Even if your income falls below the mandatory filing thresholds, filing a tax return can be highly beneficial, primarily to claim potential tax refunds. Many individuals have taxes withheld from their wages throughout the year, or they make estimated tax payments. If the amount withheld or paid exceeds their actual tax liability, filing a return is the only way to receive the overpayment back as a refund.

Furthermore, you might be eligible for refundable tax credits, which can result in a refund even if you owe no tax. The Earned Income Tax Credit (EITC) is a refundable credit for low- to moderate-income working individuals and families. The Additional Child Tax Credit (ACTC) is another example, allowing eligible taxpayers to receive up to $1,700 per qualifying child as a refund for 2024 and 2025. You generally have three years from the original due date of the return to claim a refund.

Ramifications of Not Filing

Failing to file a required tax return or failing to pay taxes owed can lead to substantial penalties and enforcement actions by the Internal Revenue Service (IRS). Two primary penalties are the “failure to file” penalty and the “failure to pay” penalty. The failure to file penalty is 5% of the unpaid taxes for each month or part of a month the return is late, capping at 25% of your unpaid taxes.

The failure to pay penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, also with a maximum of 25%. If both penalties apply, the failure to file penalty is reduced by the failure to pay penalty for that month. Interest is also charged on unpaid taxes and penalties, accruing daily from the original due date until the balance is paid in full.

Beyond penalties, the IRS can take more aggressive collection actions. If you do not file, the IRS may prepare a Substitute for Return (SFR) on your behalf, which often does not include deductions, exemptions, or credits you might be entitled to, potentially resulting in a higher tax liability.

The IRS can also place a federal tax lien, which is a legal claim against your property, including real estate, vehicles, and financial assets. A tax levy is a more direct action, allowing the IRS to legally seize your property or income, such as bank accounts, wages, or Social Security payments, to satisfy the tax debt. For unfiled returns, there is generally no statute of limitations for the IRS to assess the tax. In extreme cases, willful failure to file or tax evasion can lead to criminal charges.

Steps to Resolve Unfiled Taxes

If you have unfiled tax returns, addressing the situation promptly can help mitigate penalties and potential enforcement actions. The first step involves gathering all necessary financial documents for the unfiled years, such as W-2s, 1099s, and records of income and expenses. These documents are crucial for accurately preparing your past-due returns.

Once you have your information, prepare and submit the missing tax returns. You may need to use older tax forms, which are typically available on the IRS website. Seeking assistance from a qualified tax professional can be beneficial for complex situations or if you have multiple unfiled years, as they can help ensure accuracy and explore all available options.

If you owe taxes, several payment options are available. You can pay the full amount owed if feasible. If immediate full payment is not possible, you may be able to set up an Installment Agreement with the IRS, allowing you to make monthly payments over a period.

For taxpayers facing significant financial hardship, an Offer in Compromise (OIC) might be an option, which allows you to settle your tax debt for a lower amount than what is owed. The IRS generally approves an OIC when it represents the most they can expect to collect, considering your financial situation. Bringing all missing returns into compliance is important to avoid further penalties and enforcement actions, and to claim any refunds you might be due.