Haven't Filed Taxes in Years? What Happens and How to Catch Up
Missing one year often turns into several. The good news: catching up is usually less painful than people fear, especially if you act before the IRS contacts you. Here's what happens when returns go unfiled and how to fix it.
By the Enrolled Agents and CPAs at A&W Tax Services · Updated
The penalties
- Failure to file: 5% of the unpaid tax for each month the return is late, up to 25%
- Failure to pay: 0.5% of the unpaid tax per month, up to 25%
- Interest on unpaid tax and penalties, compounded daily
- A minimum penalty for returns more than 60 days late
The failure-to-file penalty is ten times larger than the failure-to-pay penalty, so filing on time matters even when you can't pay. If you owe nothing or are due a refund, there's usually no penalty at all.
Refunds you can lose
If you were owed a refund, you generally have three years from the original due date to claim it. After that the money goes to the Treasury for good. Many people who haven't filed are owed money and don't know it, especially those with withholding from a job or refundable credits.
The IRS may file for you
When the IRS has W-2s or 1099s for a year you didn't file, it can prepare a substitute for return (SFR). An SFR counts your income but usually none of your deductions, dependents or filing status benefits, so the bill is often much higher than what you really owe. You can replace an SFR by filing your own accurate return.
How many years to file
IRS policy generally asks for the last six years of returns to bring you into compliance, though the right number depends on your situation. You need to be current on filing before you can qualify for most payment plans or an offer in compromise.
Steps to catch up
- Request your IRS wage and income transcripts to see what was reported under your Social Security number
- Gather your own records for income not on the transcripts and for deductions
- Prepare the missing returns, starting with the most recent years
- Ask about penalty relief: first-time abatement or reasonable cause can remove some penalties
- Set up a way to pay what you owe, such as a payment plan
Why getting help pays off
Filing voluntarily before the IRS reaches out puts you in a much stronger position. An Enrolled Agent can pull your transcripts, prepare every missing year, request penalty relief and talk to the IRS for you, so you don't have to handle the calls and letters yourself.