Failure to File vs. Failure to Pay

Failing to file is more common than you might think, and from my experience the most common reason is people have anxiety around how much they’ll owe in taxes, so they can (temporarily) avoid that anxiety by not filing and not seeing how much they owe.

I’m going to tell you in one number why this is a bad idea: 47.5%. Plus interest.

This is the maximum total penalty that can be incurred for a failure to file, which is calculated based on the failure to file penalty and the failure to pay penalty as a % of total tax liability due.

If you file but fail to pay, then you will be charged .5% of the unpaid taxes for each month or part of the month taxes remain unpaid, all the way up to 25% of unpaid taxes.

In addition to this penalty, interest will accrue on your unpaid taxes as well, so the amount will be even higher.

What if you’re actually due a refund and don’t file?

There’s no penalty for failing to file if you’re owed money. But, the risk you run in this scenario is exceeding the statute of limitations for claiming your refund. So if you wait too long to file, you’ll forfeit your refund. If you’ve never filed, you have a three-year window from the original due date of the return. So if you didn’t file 2023 taxes that were due 4/15/2024 and are owed a refund, you have until 4/15/2027 to file and claim your refund.

Source: Mad Woman Media