What If I Didn’t File Taxes in 2021?
Addressing an unfiled 2021 tax return involves a clear, structured process. Understand the steps to take to become compliant and resolve your financial standing.
Understanding the implications of not filing your 2021 tax return is the first step toward compliance. There is a clear process to become compliant with tax regulations. Taking steps to file, even late, is manageable and the best course of action.
Potential Consequences of Not Filing
When a tax return is not filed by the deadline, the Internal Revenue Service (IRS) can assess a failure-to-file penalty of 5% of the unpaid taxes for each month or part of a month that a tax return is late. This penalty is capped at 25% of your outstanding tax bill. If your return is over 60 days late, the minimum penalty is the smaller of $435 or 100% of the tax owed.
A separate penalty exists for not paying the taxes owed. This is calculated at a rate of 0.5% of the unpaid taxes for each month the taxes remain unpaid, capping at 25%. When both the failure-to-file and failure-to-pay penalties apply in the same month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty, resulting in a combined maximum penalty of 5% per month.
The IRS provided special relief for the 2021 tax year. The agency automatically waived failure-to-pay penalties for eligible taxpayers assessed less than $100,000 who received their initial bill on or before December 7, 2023. This waiver does not eliminate the failure-to-file penalty, and interest on the unpaid tax continues to accrue.
Beyond penalties, interest will be charged on any unpaid tax liability. Interest can also be applied to the penalties themselves, causing the total amount owed to grow daily. The interest rate is determined quarterly and is set as the federal short-term rate plus 3 percent.
If you are due a refund, there is no penalty for filing late; however, you must file within a specific timeframe to claim it. The law provides a three-year window from the original due date of the return to claim a refund. For a 2021 tax return, you have until April 2025 to file and receive your money. If you don’t file within this period, the U.S. Treasury keeps the refund.
Should you fail to file a return, the IRS may eventually file a Substitute for Return (SFR) on your behalf. The agency uses information from third parties, like your employer (Form W-2) or clients (Form 1099), to prepare this return. An SFR typically does not include any deductions or credits you might be entitled to, often resulting in a higher tax liability. The IRS will then send a notice of deficiency, and if you don’t respond, it will proceed with collection actions.
Information and Documents Needed for Your 2021 Return
Gather all necessary income documentation for 2021. This includes Forms W-2 from employers and various Forms 1099. Common 1099 forms include:
- Form 1099-NEC for nonemployee compensation
- Form 1099-MISC for miscellaneous income
- Form 1099-INT for interest income
- Form 1099-G for government payments, like unemployment compensation
If you are missing any of these documents, you can use the “Get Transcript Online” tool on the IRS website to obtain a Wage and Income Transcript.
Identify all potential deductions and credits you were eligible for in 2021. This could include deductions for student loan interest paid, contributions to an Individual Retirement Arrangement (IRA), or expenses for educators. For the 2021 tax year, you may also be able to claim any remaining stimulus payments through the Recovery Rebate Credit or the remainder of the Child Tax Credit on your return.
You must use the correct tax forms for the 2021 tax year. You will need to complete the 2021 version of Form 1040 and any associated schedules. These forms are available on the IRS’s “Prior Year Forms & Instructions” webpage. You can download these as fillable PDFs to complete on your computer or print them to fill out by hand.
How to File Your Late 2021 Tax Return
Prior-year returns cannot be electronically filed through common consumer tax software. The only method for submitting a late 2021 return is by physically mailing it to the IRS.
Before sending your return, ensure you have signed and dated it. Forgetting to sign the return is a common error that will lead to processing delays. You must also attach copies of your Form W-2 and any other required forms or schedules to your Form 1040.
To find the correct mailing address, you will need to visit the IRS website. The specific address depends on the state you reside in and whether you are including a payment with your return. To ensure your return is received, it is advisable to use a mailing service that provides tracking or proof of delivery, such as certified mail.
Once the IRS receives your paper return, it will begin processing. This process takes significantly longer than for an e-filed return. After processing is complete, the IRS will send you a formal notice. This letter will detail the final calculation of your tax liability, including any penalties and interest that have been assessed on the balance due.
Addressing the Amount You Owe
If you can pay the full balance, the most direct methods are through IRS Direct Pay, which allows you to pay from a bank account for free, or by using a debit or credit card through an authorized payment processor, which may charge a fee. You also have the option of mailing a check or money order with the billing notice you received.
A short-term payment plan may be available, giving you up to 180 additional days to pay in full. This option is generally available to individual taxpayers who owe less than $100,000 in combined tax, penalties, and interest, though these charges will continue to accrue. For larger balances that will take longer to pay off, you can apply for an installment agreement, which establishes a monthly payment plan. These agreements can often be set up online through the IRS website.
An Offer in Compromise (OIC) allows certain taxpayers to resolve their tax liability with the IRS for a lower amount than what they originally owed. This option is generally for those who cannot pay their full tax debt or for whom doing so would create a severe economic hardship. The IRS evaluates your ability to pay, income, expenses, and asset equity when considering an OIC application.
Penalty Relief
You may be able to request that penalties be reduced or removed through a process known as penalty abatement. One common form of relief is the First-Time Penalty Abatement. To qualify, you must have a clean compliance history for the past three years. You must also have paid or arranged to pay any tax due.
Another avenue for penalty relief is showing “reasonable cause.” This applies if your failure to file or pay on time was due to circumstances beyond your control. Examples include a serious illness or death of an immediate family member, or the destruction of your home or records in a fire or natural disaster. To request this, you must provide a detailed written explanation and supporting documentation to the IRS.