What Really Happens If You Don't File Your Taxes?

Let's entertain the question that many of us daydream about in the midst of tax season.
illustrated by Benedikt Luft
March 5, 2018, 1:30pm
Illustration by Benedikt Luft

We’ve all had that moment where we are so overwhelmed that we wonder, even if just for the brief flicker of an instant, what would happen if we just hopped on the next bus headed anywhere and started all over.

This is like that, but with taxes.

What would happen if you just watched Tax Day come and go without doing anything at all? No forms, no receipts, no deductions, nothing. Just smile through it and move on, as if nothing needed to be done.

Before we get into this Choose Your Own Risky Adventure, we must remove a chunk of folks from it. First, there are people who don’t have to file, of which there are quite a few, including any single filer that makes less than $10,400, or if you’re dead. (Although someone will have to file it for the deceased that year, lucky them.)

Next, for those who are getting refunds from the government, the IRS still wants you to file, but isn’t going to spend much time tracking you down to give you money. (Every year, it has millions of dollars in checks lying around due to undeliverable addresses.)

The group we’re talking about are those lunatics who owe money, know they owe it, and simply don’t file. What happens next?

First, nothing. A whole lot of nothing. The IRS has a lot of work to get through, so unless you’re undertaking fraudulent operations—not part of this simply slothful scenario!—your record is going into the slush pile of “delinquencies.” These are subject to notices in the mail, of which there are many different variants.

According to a number of interviews I’ve conducted with people who’ve spent years not paying taxes, these notices tend to come with no real rhyme or reason, if at all.

“I’d call the IRS every few years whenever I got a letter,” says a friend, who went a decade without filing. “This was once every three years or so. And then I’d tell them I was going to start paying, and they would stop bothering me.”

Eventually, maybe, you’ll get one called CP518B. This is the IRS’s “final notice.” If the IRS doesn’t hear from you after this, according to its website, it “may determine your tax for you, and penalty and interest can continue to accrue.” These penalties and interest would have been accruing since you initially failed to file, and this is where things start to get bad really fast.

At this juncture, you would have two penalties running simultaneously: one for failing to file, and one for failing to pay. For filing late, the penalty starts at $205, and then 5 percent of the taxes owed per month, maxing out at 25 percent. Meanwhile, the penalty for late payment is 0.5 percent of the unpaid taxes per month, which also maxes out at 25 percent. If enough time passes without filing, and thusly not paying, the combined penalty can be reach a total of 47.5 percent of your tax owed over time. (It’s not a full 50 percent due to some overlapping penalties.)

According to my decade-long delinquent friend, of the $11,000 in back taxes she owed, somewhere between $2,000 and $3,000 was due to these penalties. She’s not entirely sure how much, for relatable reasons.

“I was really squinting, and reading as little as possible in order to continue my coping mechanisms,” she says. “It was deep denial, and then just biting the bullet and starting a payment plan.”

Which gets into the other event that’s likely to happen during this non-filing period: that low simmer of constant, bubbling stress; feeling that slow freight train of fees and back taxes approaching. “The reason I haven’t done it is that money creates anxiety, and thinking about it makes me flop sweat,” says another friend, who hasn’t done his taxes in years. “Looking at my taxes only reinforced my feelings about being economically crippled.”

But does simply not filing your taxes ever lead to anything worse than penalties and stress?

“Non-filing and non-paying taxpayers rarely go to jail unless there is criminal activity or fraud,” says Cindy Hockenberry, director of Tax Research and Government Relations for the National Association of Tax Professionals.

But “rare” is not “never.” According to the IRS, through fiscal year 2017, there were 206 non-filer investigations initiated, 113 prosecution recommendations, 106 indictments, and 159 people sentenced to either federal prison, halfway house, home detention, or some combination. The average sentence was 38 months.

It may seem worth it to play the odds to see if you can escape serious fees, or even jail time, by relying on the IRS’s mercy (or its inability to follow-up on every single case). But that risk has to be measured against the negatives of living with the anxiety of not filing and paying, and the knowledge that tax debts only get more stressful over time.

Follow Rick Paulas on Twitter.