What If I Haven’t Filed Taxes in 2 Years?

Not filing tax returns can cause concern, but clear pathways exist to resolve these matters. Taking proactive steps can significantly mitigate potential issues and lead to a more manageable outcome.

Understanding the Consequences of Not Filing

Failing to file tax returns can lead to several financial implications, including penalties and interest charges. One such consequence is the failure to file penalty, outlined in Internal Revenue Code Section 6651. This penalty typically amounts to 5% of the unpaid taxes for each month or part of a month a tax return is late, with a maximum penalty of 25% of your unpaid tax liability. For returns over 60 days late, a minimum penalty applies, which is the lesser of $510 for tax returns required to be filed in 2025, or 100% of the tax owed.

In addition to the failure to file penalty, a failure to pay penalty is also assessed. This penalty is 0.5% of the unpaid taxes for each month or part of a month that taxes remain unpaid, also capped at 25% of the unpaid amount. If both penalties apply in the same month, the failure to file penalty is reduced by the failure to pay penalty, ensuring the combined penalty does not exceed 5% per month.

Interest also accrues on both unpaid taxes and penalties, compounding daily, which can significantly increase the total amount owed over time. The IRS sets this interest rate quarterly, which is typically the federal short-term rate plus 3 percentage points. For instance, as of January 1, 2025, the interest rate for underpayments was 7% per year.

Another significant consequence of not filing is the potential loss of any refunds due. Taxpayers generally have a limited timeframe, typically three years from the original due date of the return, to claim a refund by filing the return. If the return is not filed within this period, any potential refund is generally forfeited.

The IRS may also prepare a Substitute for Return (SFR) on behalf of a taxpayer who has not filed. An SFR is based on information the IRS receives from third parties, such as W-2s from employers or 1099s from banks. These IRS-prepared returns often do not include deductions, credits, or exemptions the taxpayer might be entitled to, which can result in a higher tax liability than if the taxpayer had filed their own return. If a taxpayer ignores notices regarding an SFR, it can lead to further collection actions, including liens or levies.

Steps to Take When You Haven’t Filed

Addressing unfiled tax returns begins with gathering all relevant financial documents for the years in question. This includes W-2s for wages, 1099s for various types of income, and 1098s for mortgage interest paid. Documentation for potential deductions, like medical expenses, charitable contributions, or business expenses, should also be compiled.

If original documents are unavailable, past tax records can often be obtained. Employers or payers can provide copies of lost W-2s or 1099s. Requesting tax transcripts from the IRS is important, as they provide key information the IRS has on file, such as income reported by employers and financial institutions. These transcripts can be ordered online, by mail, or by phone using the IRS Get Transcript tool or by submitting Form 4506-T.

The IRS generally encourages taxpayers to file all unfiled returns. For practical purposes, the IRS typically focuses its enforcement actions on the most recent six years. Therefore, prioritizing the preparation and filing of the most recent unfiled tax years is a prudent approach.

Once all necessary information and documents are gathered, the tax returns for the unfiled years can be prepared. Tax software designed for past years can be utilized, or a tax professional can assist with the preparation. Remember that past-due tax returns often require paper filing, as electronic filing options may not be available for prior tax years.

Resolving Unpaid Tax Debts

After preparing and filing unfiled tax returns, a tax liability may be determined. The most straightforward approach to resolving unpaid tax debts is to pay the amount in full if financially possible. Paying the entire balance immediately stops the accrual of further penalties and interest, minimizing the overall cost.

If immediate full payment is not feasible, the IRS offers several payment resolution options. A short-term payment plan allows taxpayers up to 180 additional days to pay their tax liability in full. While this option provides a brief extension, penalties and interest continue to accrue during this period.

For those needing a more extended repayment period, an Installment Agreement, under Internal Revenue Code Section 6159, permits monthly payments for up to 72 months. Taxpayers can apply for an Installment Agreement by submitting Form 9465 or through the IRS online payment agreement tool. Although penalties and interest still apply under an Installment Agreement, the failure-to-pay penalty rate is often reduced while the agreement is in effect. Individual taxpayers may qualify to apply online for an installment agreement if they owe $50,000 or less in combined tax, penalties, and interest, and have filed all required returns.

An Offer in Compromise (OIC), under Internal Revenue Code Section 7122, allows certain taxpayers to settle their tax debt for a lower amount than what they originally owe. This option is typically considered when there is doubt as to collectibility, doubt as to liability, or when collection would create economic hardship. An OIC is generally reserved for situations of significant financial hardship and requires a detailed application, often involving Form 656. The IRS evaluates a taxpayer’s ability to pay, income, expenses, and asset equity when considering an OIC.

Another potential option for taxpayers facing severe financial hardship is Currently Not Collectible (CNC) status. This temporary status means the IRS has determined that the taxpayer cannot pay any of their debt at that time. While in CNC status, the IRS generally pauses collection activities, but the debt, along with penalties and interest, continues to exist and can be pursued once the taxpayer’s financial situation improves.

Seeking Professional Assistance

Engaging a tax professional can provide significant advantages when navigating unfiled tax returns and accumulated tax debts. These professionals can offer assistance with gathering necessary information, ensuring accurate preparation of past-due returns, and helping taxpayers understand their compliance obligations. Their expertise can be particularly valuable in complex situations, such as requesting penalty abatement or negotiating with the IRS for payment options like installment agreements or Offers in Compromise.

Various types of professionals can provide this support, including Enrolled Agents (EAs), Certified Public Accountants (CPAs), and tax attorneys. Enrolled Agents are authorized by the U.S. Department of the Treasury to represent taxpayers before the IRS. CPAs are licensed accounting professionals, and tax attorneys specialize in tax law. All these professionals have unlimited representation rights before the IRS.

When choosing a tax professional, it is advisable to seek someone with experience in handling unfiled returns and tax debt resolution. Important considerations include their credentials, a clear understanding of their fee structure, and effective communication skills. A qualified professional can offer peace of mind by managing the process, ensuring compliance, and potentially identifying opportunities for reducing tax liabilities or penalties.