What to Do If You Haven’t Filed Taxes in Years

There is no penalty for late filing your tax return if the IRS owes you money. But if you owe them money, things can get very nasty, very quickly. Here’s what you need to know and do if you haven’t filed a tax return in years.

First, if you believe you are entitled to a refund, your main concern should be that you are leaving money on the table. But the chance to claim your share of that money doesn’t last forever—you only have three years to get what Uncle Sam owes you. Since there is no penalty for late filing if you don’t have to pay, you’ll definitely want to do it immediately if you owe money.

But let’s say you haven’t filed your taxes and are in debt. Or maybe you applied but didn’t pay the debt. Either way, you may end up in trouble with the IRS.

What happens if you don’t pay your taxes?

According to Cornell Law School’s Legal Information Institute, failure to pay delinquent taxes is technically a misdemeanor and could land you in jail for up to a year. However, going to jail is unlikely, as David Cawley, certified public accountant (CPA) and partner at Fraim, Cawley & Company, CPAS, explained to LendingTree :

If you commit tax fraud by lying on your tax returns or not filing them at all, you may face criminal charges, but taxpayers will never go to jail for not having enough money to pay taxes.

Most often, you will simply have to pay penalties and interest on the taxes you owe, but the penalties for failing to file are significant. The IRS charges a failure to file penalty of up to 5% per month of the amount you owe, up to a maximum of 25%. You also must pay interest on any unpaid taxes after the filing deadline (check this IRS page for the latest updates to see the current rate), as well as a late payment penalty of 0.5% of your unpaid taxes for each month in during which you do not pay. I don’t pay them, up to 25%.

To break this down, there are two types of fines. You will be assessed a penalty for failure to file a tax return equal to 5% of your total unpaid taxes for each month (or part of a month) that your tax return is late. In addition, the “Failure to Pay” penalty is 0.5% of the amount of unpaid tax for each month (or part of a month) during which the tax remains unpaid. If both a failure to file and a failure to pay penalty are applied in the same month, the aggregate penalty is 5% (4.5% for late filing and 0.5% for late payment) for each month or part of a month in which during which your return was late, up to 25%. The IRS has a complete breakdown of late filing fees and penalties here .

If you miss a payment, the IRS will send you a letter. They’ll send you at least two payment notices before the debt collection process begins , and that’s when things can get really ugly: The IRS could freeze your bank accounts, garnish your wages, and even foreclose on your home. Although the government has up to six years to bring criminal charges against you for tax evasion, there is no time limit on how long the IRS can pursue you for failure to pay taxes.

What to do if you missed filing and/or have unpaid taxes

There are some circumstances in which the IRS may waive these penalties, although you will still have to pay the debt. You need to prove “reasonable cause” as stated on the IRS website :

Making a good faith payment as soon as possible can help establish that your initial failure to pay on time was due to a reasonable cause rather than willful neglect. If you are billed for fines and have reasonable cause for a fine reduction, please send your explanation along with the bill to your service center or call us at 800-829-1040 for assistance. The IRS generally does not reduce interest charges, and they continue to accrue until all accrued taxes, penalties and interest are paid in full.

The IRS suggests several “typical situations” in which you may want to claim:

Fire, accident, natural disaster or other disturbance

Inability to retrieve records

Death, serious illness, disability or imminent absence of the taxpayer or a member of his family.

Another reason that you have exercised all ordinary business care and diligence to satisfy your federal tax obligations, but nevertheless failed to do so.

In any of these scenarios, you will need to provide documentation (such as court records or a letter from a doctor). Once you are ready to file your return and pay, you will need to retroactively file a return for each year you missed. If you have old pay stubs, 1099s or W-2s, you’ll want to collect as many of these documents as possible. If you don’t have all the information you need to apply, you’ll have to provide your best guess about your income, deductions, filing status, and so on. You can also request a transcript from the IRS to obtain information from any W-2 or 1099 forms the employer filed on your behalf.

After filing returns for each year of delay, pay off the outstanding taxes and penalties. The IRS offers short-term (120 days or less) and long-term payment plans if you cannot pay the entire amount at once. Long-term payment plans have set fees, a summary of which can be found here .

If you can’t pay your back taxes and penalties, consider contacting the IRS to set up an installment plan. There is also something called an “offer in compromise,” which is a request to consider accepting less than the full amount owed.

Complete these steps as soon as possible if you haven’t filed a tax return in years.

The potential penalties and stress of not paying taxes will only get worse over time. Here are the steps you can take right now to resolve the issue:

1. Gather forms and income documents. Gather together all forms such as W2, 1099, and wage records for the years you did not file. You will need to estimate your income if you do not have documentation.

2. Select your serving method. You can file old returns manually by mail, use IRS tax filing software, or contact a tax professional. A tax professional can help you maximize your deductions and navigate your communication with the IRS.

3. Submit your returns in order. Start with the oldest unfiled return and work your way to the most recent one. Make sure you use the deduction forms and rules that apply to each tax year. Submit each return separately upon completion.

4. Pay any taxes due. Estimate the taxes owed on your unfiled returns, or contact the IRS to set up a payment plan if you can’t pay in full. Interest and penalties will continue to accrue until your balance is paid off.

5. Keep track of your documents. After filing, check back a few weeks later to confirm that the IRS has received your returns. Respond quickly if they have any questions or ask for changes.

6. Keep going forward. Moving forward, be sure to start filing annual tax returns again by the April deadline each year. Stay organized by keeping tax documents and records together throughout the year.

7. Consider amending past reports . Once you’ve met the requirements for unfiled taxes, you can consult with a tax professional to see if amending your prior year’s tax returns can get your refund back or reduce your liability.

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