What Happens If You File Your Taxes Wrong? Late Filing Penalties, Interest, and More

Tax season. It can feel like navigating a maze. Mistakes happen, and deadlines can get away from us. And if you haven’t filed yet or you’re worried about filing late, you may be concerned about how that can affect your standing with the IRS. This article focuses on understanding the implications of filing your taxes wrong or missing filing altogether. More importantly, we’ll help you understand the actionable steps you can take to get back on track. Let’s explore the landscape of tax filing together.

Key Takeaways

• Filing your taxes late or incorrectly can result in significant penalties and interest, including a late-filing penalty of up to 5% of the unpaid tax per month.
• If you owe back taxes, you may be able to set up an installment agreement with the IRS to pay off your debt over time, but you’ll still be charged interest and a setup fee.
• Failing to pay your taxes altogether can lead to more severe consequences, including liens on your property and even tax levies.
• If you’re struggling to pay your taxes, you may be eligible for an Offer in Compromise, or the debt may be deemed currently not collectible by the IRS Currently Not Collectible status, but you’ll need to provide financial documentation and meet specific requirements.
• Filing for an extension is an extension to file your tax return, not an extension of time to pay your taxes. It also will not automatically forgive your tax debt, but a payment plan can give you a chance to pay in installments, though you will incur penalties and interest until your debt is fully paid.

What Happens If You File Your Taxes Wrong?

If you file your taxes wrong, you may be subject to penalties and interest, including:

• Late-filing penalty: If you don’t file your taxes on time, you’ll be charged a late-filing penalty of up to 5% of the unpaid tax per month, or part of a month that a return is late.
• Accuracy-related penalty: If you underpay or overpay your taxes due to an error on your return, you may be charged an accuracy-related penalty.
• Interest and penalties: In addition to the above penalties, you may also be charged interest and penalties on the amount you owe.

What to Do If You Filed Your Taxes Wrong:

If you realize you filed your taxes wrong or forgot to include a tax form, don’t panic. Here are some steps you can take to rectify the situation:

• File an amended return: You can file an amended return (Form 1040X) to correct any errors or omissions, or to include missing documents on your original return.
• Pay any additional tax due: If you owe back taxes, you’ll need to pay the amount due, plus any interest and penalties.
• Consider hiring a tax expert: If you’re not sure how to fix the mistake or if the amount you owe is significant, it may be worth hiring a tax expert to help you navigate the process.

What Happens If You File Taxes Late?

If you missed the tax filing deadline, you’re not alone. However, it’s important to act fast–the longer you delay filing, the more you might rack up in additional fees, including:

• Late-filing penalty: If you don’t file your taxes on time, you’ll be charged a late-filing penalty of up to 5% of the unpaid tax per month, up to a maximum of 25%.
• Failure-to-file penalty: If you don’t file your taxes at all and your return is more than 60 days late, you may be subject to a failure-to-file penalty of $510 or 100% of the tax owed, whichever is less.
• Interest on unpaid tax: Interest will be charged on any unpaid tax balance from the due date until it is paid. The annual interest rate is currently 7%, and it compounds daily.

What to Do If You File Taxes Late:

If you missed the tax filing deadline, here are some steps you can take to minimize the damage:

• File your return as soon as possible: Once you have all the necessary documents, file your return as soon as possible to avoid additional penalties and interest. There’s no penalty for filing after the April 15 deadline if you are due a refund. However, taxpayers due a refund should still consider filing as soon as possible.
• Pay any additional tax due: If you owe back taxes, you’ll need to pay the amount due, plus any interest and penalties.

What Happens If You Forgot to File Your Taxes?

If you forgot to file your taxes altogether, you may be subject to more severe consequences, including:

• Failure-to-file penalty: If you don’t file your taxes at all, you may be subject to a failure-to-file penalty of usually 5% of the tax owed each month (or part of month) that your tax return is late, up to 25%. 
• Interest and penalties: In addition to the above penalty, you may also be charged interest and penalties on the amount you owe.
• Tax liens: If you ignore the IRS notices and continue to avoid filing your taxes, the IRS may place a tax lien on your property, which can damage your credit score and make it difficult to sell or refinance your home.

What to Do If You Forgot to File Your Taxes:

If you forgot to file your taxes, here are some steps you can take to get back on track:

• File your return as soon as possible: Once you have all the necessary documents, file your return as soon as possible to avoid additional penalties and interest.
• Pay any additional tax due: If you owe back taxes, you’ll need to pay the amount due, plus any interest and penalties.
• Consider hiring a tax expert: If you’re not sure how to file your return or if the amount you owe is significant, it may be worth hiring a tax expert to help you navigate the process.

What Happens If You Don’t Pay Your Taxes?

If you owe back taxes and don’t pay them, you may be subject to more severe consequences, including:

• Tax liens: If you ignore the IRS notices and continue to avoid paying your taxes, the agency may place a tax lien on your property, which can damage your credit score and make it difficult to sell or refinance your home.
• Tax levies: If the IRS is unable to collect the amount you owe through letters and calls, the agency may file a tax levy, which allows them to seize your bank accounts, wages, or other assets.
• Wage garnishment: If the IRS is still unable to collect the amount you owe, they may garnish your wages, which means they’ll take a portion of your paycheck each month until the debt is paid off.

What to Do If You Can’t Pay Your Taxes:

If you’re struggling to pay your taxes, here are some options you can consider:

• Installment agreement: You can set up an installment agreement with the IRS to pay off your debt over time.
• Offer in Compromise: You may be eligible for an Offer in Compromise, which allows you to settle your tax debt for less than the full amount you owe.
• Currently Not Collectible: If you’re experiencing financial hardship, you may be eligible for a Currently Not Collectible status, which temporarily suspends collection activity on your account and must be determined by the IRS. You will need to provide financial documentation and meet specific requirements and this can only be determined by the IRS. This does not eliminate the debt but temporarily delays collection until your financial condition improves.

What Happens If You Never File Taxes?

If you never file your taxes, you may be subject to the most severe consequences, including:

• Statutory tax lien: The IRS may file a statutory tax lien on your property, which can remain on your credit report for 10 years, even if you pay off the debt.
• Civil penalties: You may be subject to civil penalties, including fines and interest, which can add up quickly.
• Criminal prosecution: In extreme cases, the IRS may even refer your case to the Department of Justice for criminal prosecution, which can result in fines and even prison time.

What to Do If You Never File Taxes:

If you’ve never filed your taxes and should have, here are some steps you can take to get back on track:

• File your returns as soon as possible: Once you have all the necessary documents, file your returns for all the years you owe taxes.
• Pay any additional tax due: If you owe back taxes, you’ll need to pay the amount due, plus any interest and penalties.
• Consider hiring a tax professional: If you’re not sure how to file your return or if the amount you owe is significant, it may be worth hiring a tax professional to help you navigate the process.

File Correctly and On Time: Your Guide to Avoiding Tax Trouble

Filing your taxes on time and accurately is crucial to avoid penalties, interest, and other consequences. If you’ve missed the deadline or made mistakes on your return, don’t panic. There are steps you can take to rectify the situation, including filing an amended return, paying any additional tax due, and seeking help from a tax expert. File your taxes with confidence today and avoid the stress and financial burden that comes with tax debt.