At the end of each tax year, there's typically good news or bad news. Either the government owes you money, or you owe it money. If you file your taxes late, be prepared to be hit with fees from the Internal Revenue Service (IRS). And if you don't file taxes at all, you could forfeit any available returns, or in more serious cases, even face jail time.
The good news is the IRS gives you plenty of time to file. This year's tax deadline is April 17. (If you need more time, file for an extension so you won't be penalized.)
If the government owes you, you'll have three years to claim the tax refund. After that, it goes poof — or at least, it becomes property of the U.S. Treasury. As of March 8, the IRS reported that it had about $1.1 billion in unclaimed federal income tax refunds for an estimated 1 million taxpayers who did not file in 2014.
"We’re trying to connect a million people with their share of $1.1 billion in unclaimed refunds for 2014,” said Acting IRS Commissioner David Kautter in a news release. “Time is running out for people who haven’t filed tax returns to claim their refunds. Students, part-time workers and many others may have overlooked filing for 2014. And there’s no penalty for filing a late return if you’re due a refund.”
Many taxpayers don't file because their earnings didn't surpass the requirement. However, taxpayers who have federal taxes withheld by their employer may be eligible for a refund of those taxes. Also, even if you aren’t required to file, you may qualify for benefits like the Earned Income Tax Credit (EITC).
Additionally, the IRS can opt to file substitute returns for you if you miss the deadline — which sounds great, but isn't actually in your best interest. The IRS won't consider factors like tax credits and deductions that could reduce your taxable income, which means you may be overpaying on your taxes in the end.
If you owe taxes to the government, however, not paying your bill can carry more serious consequences. But also, relax. The IRS recognizes that negligence isn't the same as tax fraud. Most serious legal trouble can be avoided, as long as you're making an effort to comply.
The IRS will likely contact you repeatedly to remind you to file before the deadline, but late fees will take effect as soon as you miss your filing or extension deadline.
In the event that you've missed your deadline and you owe the government taxes, the IRS will start the collection process.
"The first notice you receive will be a letter that explains the balance due and demands payment in full," the IRS website states. "It will include the amount of the tax, plus any penalties and interest accrued on your unpaid balance from the date the tax was due."
If you can't pay the balance, you can ask about signing a monthly installment agreement to pay what you can. After sending multiple correspondences regarding an unpaid tax bill, however, the IRS will send a representative to your home or business to collect payment, according to money management expert Jennifer Calonia, typically if you owe more than $25,000.
If you continue to disregard notices from the IRS, it will begin seizing your assets until the debt is settled.
"The IRS may levy assets such as wages, bank accounts, social security benefits, and retirement income," its website states. "The IRS also may seize your property (including your car, boat, or real estate) and sell the property to satisfy the tax debt."
The bottom line is, you should make every attempt to file your taxes on time. But if you can't, or don't, and you communicate with the IRS about your situation, you should be OK. I'm rooting for you.