What happens if I don't file taxes?

If you owe money, the failure-to-file penalty is 5 percent of the unpaid balance per month, capped at 25 percent, while the failure-to-pay penalty is only 0.5 percent per month. Filing a return you cannot pay is therefore roughly ten times cheaper than hiding. Interest accrues on top of both.

Ignore it long enough and the IRS files a substitute return on your behalf using the least favorable assumptions, no deductions, no credits, then bills you. After that come liens, levies, and wage garnishment. The IRS moves slowly, but it does not forget, and there is no statute of limitations on an unfiled return.

If you are owed a refund, there is no penalty for filing late, but you forfeit the refund entirely if you wait more than three years. The fix in every scenario is the same: file now, then set up a payment plan online.