Most citizens voluntarily file their tax returns and pay their taxes. However, there are times when law-abiding citizens fail to file, such as in years their filing status changes, the death of a spouse, divorce, emotional or financial reasons. Or it could simply be due to procrastination.

Unfortunately, failing to file a return creates additional problems.

Why file a tax return?

Taxpayers are required by law to file an income tax return for any year in which a filing requirement exists.

There are numerous practical reasons to file tax returns. Programs like federal aid to higher education require applicants to submit copies of tax returns to qualify for loans. Lending institutions also may require copies of filed returns for buying a home or financing a business.

A person’s lifetime earnings as reported to the IRS and the Social Security Administration are the basis for Social Security retirement and disability benefits, as well as Medicare. It is also the source for state benefits such as unemployment compensation and industrial insurance.

The consequences of not filing a tax return:

  • Failure to file penalty.
    If you owe taxes, a delay in filing may result in a “failure to file” penalty, also known as the “late filing” penalty, plus interest charges. The longer you delay, the larger these charges grow. It may result in penalty and interest charges that could increase your tax bill by 25% or more.
  • Losing your refund.
    There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. In cases where a return is not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund.
  • Earned Income Tax Credit.
    Individuals who are entitled to the EITC must file their return to claim the credit even if they are not otherwise required to file. The return must be filed within three years of the due date in order to receive the credit.
  • Statutes of limitations.
    After the expiration of the refund statute, not only does the law prevent the issuance of a refund check, it also prevents the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid. On the other hand, the statute of limitations for IRS to assess and collect any outstanding balances does not start until a return has been filed. In other words, there is NO statue of limitations for assessing and collecting the tax if no return has been filed.

What should you do if you have not filed previous or current year
tax returns?

Contact our tax professionals at Heintzelman Accounting Services, Inc. for help with filing delinquent returns.