What to Do If You Didn’t File Taxes Last Year?

Realizing you haven’t filed a tax return for a previous year can feel overwhelming. Addressing this situation promptly is crucial, as ignoring a past-due filing obligation leads to accumulating penalties and interest. This guide will help you understand the implications and navigate the process of getting back on track with your tax filings.

Understanding the Implications of Not Filing

Not filing a required tax return carries financial penalties. The “Failure to File” penalty is 5% of the unpaid taxes for each month or part of a month a return is late, capped at 25% of your unpaid taxes. If your return is more than 60 days late, the minimum penalty is the lesser of $485 for returns due in 2024 or 100% of the tax owed.

If you owe taxes, a “Failure to Pay” penalty also applies. This penalty is 0.5% of the unpaid taxes for each month or part of a month the taxes remain unpaid, also capped at 25% of the unpaid tax. Both penalties can apply simultaneously, though the failure-to-file penalty is reduced by the failure-to-pay penalty for any month in which both apply.

Interest accrues on any unpaid taxes and penalties, compounding the amount owed. This interest rate can change quarterly and is based on the federal short-term rate plus 3 percentage points.

For taxpayers owed a refund, there is a time limit to claim it. The statute of limitations for claiming a refund is three years from the date the original return was due or two years from the date the tax was paid, whichever is later. Failing to file within this timeframe means you could lose your right to any refund. While the IRS can pursue criminal charges in severe cases of intentional tax evasion, their focus for most taxpayers with delinquent returns is to encourage compliance and payment of civil tax liabilities.

Steps to Prepare Your Late Return

Preparing a delinquent tax return requires gathering financial documents for the year you need to file. You will need records of all income received, such as W-2 forms from employers and various 1099 forms, including 1099-INT for interest income, 1099-DIV for dividend income, 1099-NEC for nonemployee compensation, and 1099-MISC for miscellaneous income.

You will also need documentation for any deductions or credits you plan to claim, such as records of student loan interest, mortgage interest (Form 1098), or retirement contributions. Organizing these documents before starting the return streamlines the preparation process.

If you are missing W-2s, 1099s, or other income statements, you can often obtain copies by contacting the employer or financial institution directly. The IRS Wage and Income Transcript is another resource for obtaining missing income information. You can request this transcript for specific tax years by filing Form 4506-T. This transcript provides data the IRS has received from employers and other payers, such as wages, interest, and dividends.

It is important to use the correct tax forms for the specific year you are filing. For example, if you are filing for 2022, you will need the 2022 version of Form 1040 and any associated schedules. Prior-year forms and instructions are available on the IRS website.

Once you have all your documents and the correct forms, accurately report all income sources and claim eligible deductions and credits according to the tax laws for that specific year. While many prepare their own returns, professional tax software or a qualified tax preparer can be beneficial, especially if your situation is complex or involves multiple delinquent years.

Submitting Your Delinquent Tax Return

After completing your delinquent tax return(s), submit them to the Internal Revenue Service. For most prior-year returns, electronic filing through commercial tax software is not an option. This means delinquent returns typically must be mailed as paper copies.

Mail your completed paper tax return to the correct IRS mailing address for prior-year returns. Addresses vary by location and whether you include a payment; check the IRS website for specific addresses. Using certified mail with a return receipt provides proof of submission.

If you owe taxes, include your payment with the mailed return. Make your check or money order payable to the “U.S. Treasury.” Include Form 1040-V, Payment Voucher, to help the IRS credit your payment correctly.

Expect longer processing times for paper returns, potentially several weeks or months. The IRS may send correspondence, such as an acknowledgment or a notice of assessment detailing taxes, penalties, and interest due. Review any notices carefully and respond promptly if additional information is requested.

Navigating Tax Payment Options

If you owe taxes with your late return, several payment options are available. You can pay the full amount due immediately using electronic methods like IRS Direct Pay (from your bank account) or the Electronic Federal Tax Payment System (EFTPS). You can also pay with a debit or credit card through third-party processors, though fees may apply.

When paying by check or money order, make it out to the “U.S. Treasury.” Include the following on the payment:
Your name
Address
Daytime phone number
Social Security number
Tax year
Related tax form number

This helps ensure your payment is correctly applied.

If you cannot pay your full tax liability immediately, the IRS offers options to manage the debt. An Installment Agreement allows monthly payments for up to 72 months. Apply online or by submitting Form 9465. While an installment agreement helps avoid further collection actions, interest and penalties continue to accrue, though the failure-to-pay penalty may be reduced.

For taxpayers experiencing financial hardship, an Offer in Compromise (OIC) might be an option. An OIC allows taxpayers to settle their tax liability for a lower amount than owed. OICs are generally granted only when the taxpayer demonstrates an inability to pay the full amount due and involve a detailed application process. Proactive communication with the IRS about payment difficulties is recommended, as ignoring the debt can lead to more severe collection actions.

References

https://www.irs.gov/payments/penalties-for-underpayment-of-estimated-tax
https://www.irs.gov/newsroom/interest-rates-increase-for-the-fourth-quarter-of-2023
https://www.irs.gov/businesses/small-businesses-self-employed/what-if-i-dont-file-on-time
https://www.irs.gov/forms-pubs/about-form-1099-misc
https://www.irs.gov/individuals/how-to-get-a-transcript-or-copy-of-your-tax-return