The Longer You Wait The More Serious The Consequences
Once the IRS determines you should have filed a return and didnt, youll start hearing from them. Youll likely receive a notification letter from the IRS stating you will be penalized for not filing a return.
The IRS may also create a return for you. For example, if your employer reported wages, the IRS may create a tax return showing those wages. The catch? The IRS doesnt know about any deductions or other tax benefits you may deserve. They typically only know about your income, and unless you straighten things out, you could end up paying a lot more in taxes than you should.
If the IRS doesnt hear from you once youve been contacted, things can get more serious. Your bank may send you a notice indicating your money has been seized by the IRS. The agency may also put a lien against your property or garnish your wages. And, during all this time, interest and penalties are piling up, meaning the IRS can take more of your money.
How Do You Treat Jobless Benefits On 2020 Tax Returns
Still, we’re;dealing with some pretty important tax changes that were part of three;COVID-19 relief packages passed by Congress;;one last spring, another in late December and now, the American Rescue Plan that went into law March 11.;
Did you, for example, receive unemployment benefits during the sweeping shutdowns in the economy in 2020?
Typically, all unemployment;benefits would be taxable.
But the American Rescue Plan provided that many taxpayers now are not required to pay taxes on up to $10,200 in unemployment benefits received last year. Yes, the changes are retroactive and went into place after some people already filed their 2020 federal income tax returns. Yes, it’s confusing because this change went into place;a month after the tax season began.;
The exclusion is up to $10,200 of jobless benefits per person. You and your spouse, for example, can;each;exclude up to $10,200 of unemployment compensation if filing a joint return.;
It is not a simple change. For example, if one spouse received $15,000 in jobless benefits but the other received just $1,000 in unemployment compensation in 2020, then the exclusion for tax purposes that the couple would receive would be $11,200 not $16,000.
The special;provision to waive taxes on some unemployment income applies to those who made less than $150,000 in adjusted gross income in 2020.
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Failure To File Taxes
If you fail to file your tax returns on time you could be charged with a crime. The IRS recognizes several crimes related to evading the assessment and payment of taxes. Penalties can be as high as five years in prison and $250,000 in fines. However, the government has a time limit to file criminal charges against you. If the IRS wants to pursue tax evasion or related charges, it must do this within six years from the date the unfiled return was due. Non-filers who voluntarily file their missing returns are rarely charged.
People may get behind on their taxes unintentionally. Perhaps there was a death in the family, or you suffered a serious illness. Whatever the reason, once you havenât filed for several years, it can be tempting to continue letting it go. However, not filing taxes for 10 years or more exposes you to steep penalties and a potential prison term.
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Dont Lose Your Refund By Not Filing
Many people may lose out on a tax refund simply because they did not file a federal income tax return.
Many taxpayers may not file because they didnt earn enough money to be required to file. However, taxpayers who had federal taxes withheld by their employer may be eligible for a refund of those taxes. Also, even if you arent required to file, you may qualify for benefits like the Earned Income Tax Credit.
You must file a tax return to get the money.
There is usually no penalty for failure to file, if you are due a refund. But, if you wait too long to file a return or otherwise claim a refund, you risk losing your refund altogether.
In most cases, an original return claiming a refund must be filed within three years of its due date for the IRS to issue a refund.
Generally, after the three-year window closes, the IRS can neither send a refund for the specific tax year. nor apply any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid.
Current and prior year tax forms and instructions are available on the IRS.gov Forms and Publications page.
Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 should request copies from their employer, bank or other payer.
What’s Causing The Massive Irs Backlog And Delays
Because of the pandemic, the IRS ran at restricted capacity in 2020, which put a strain on its ability to process tax returns and created a backlog. The combination of the shutdown, three rounds of stimulus payments, challenges with paper-filed returns and the tasks related to implementing new tax laws and credits created a “perfect storm,” according to a;National Taxpayer Advocate review;of the 2021 filing season to Congress.;
The IRS is open again and currently processing mail, tax returns, payments, refunds and correspondence, but limited resources continue to cause delays. The IRS said it’s also taking more time for 2020 tax returns that need review, such as determining;recovery rebate credit;amounts for the first and second stimulus checks — or figuring out earned income tax credit and additional child tax credit amounts.
Here’s a list of reasons your income tax refund might be delayed:;
- Your tax return has errors.
- It’s incomplete.
- Your refund is suspected of identity theft or fraud.
- You filed for the earned income tax credit or additional child tax credit.
- Your return needs further review.
- Your return includes;Form 8379;, injured spouse allocation — this could take up to 14 weeks to process.
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Filing Past Due Tax Returns
File all tax returns that are due, regardless of whether or not you can pay in full. File your past due return the same way and to the same location where you would file an on-time return.;
If you have received a notice, make sure to send your past due return to the location indicated on the notice you received.
Assuming You Have 6 Extra Months To Get It Together
The standard extension can;buy you an extra six months to file, which gets you to the middle of October. But if youre one of the few who get an automatic extension, dont assume you have the same amount of time.
That out-of-the-country crowd mentioned earlier gets just two extra months to file, for instance; the amount of extra time varies for people affected by certain natural disasters.
Members of the military could get more than six months in some situations.
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What Tax Documents Do I Need To File Back Taxes
When was the last year you filed? Do you have a copy of that tax return? Do you still have W-2s and other tax documents for the years you didn’t file?
You can request copies of your tax documents from the IRS if youre missing anything by filing Form 4506-T, or you can contact your employer or the institution that would have sent them to you.;
Keep in mind that current or former employers or other establishments might not still have these documents on file, or at least they may not be easily accessible. There might also be a fee if you choose this option.
At a minimum, youll need Forms W-2 and 1099 for any income you brought in during the year in question, as well as specific tax returns and forms for that tax year. For example, you cant file a 2020 Form 1040 to report 2019 income. You should also gather supporting documentation of anything you spent that year that might be tax deductible or that will qualify you for tax credits, such as bank statements and credit card statements for that period of time.
You Filed A Paper Return
As mentioned earlier, the IRS normally takes longer to process paper returns than electronically filed returns. That means you will wait longer for a refundand even longer if you want your refund as a check. The IRS also takes longer to process a return and issue a refund if you file a paper return via certified mail.
Speaking of paper returns, you will need to file all amended returns as a paper return. The IRS estimates the processing time for amended returns as somewhere between eight and 12 weeks.
Even if you file electronically, you will have to wait longer if you elect to receive your refund as a paper check. Sending a check through the mail also creates the possibility of the check getting lost or sent to the wrong address. That would delay your refund similarly to the way sending a refund to the wrong bank account would.
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Meet The Deadline For The Extension
The IRS must receive Form 4868 on or before the tax filing deadline, which is usually April 15 unless that day falls on a weekend or holiday. In this case, it would be the next business day.
The IRS will charge a late filing penalty, a late payment penalty, and interest on any unpaid balance you owe if you don’t file your return or an extension on time and if you also fail to pay on time. But you’ll at least avoid the late-filing penaltywhich is a hefty 5% of the taxes you owe for every month your return is lateif you file an extension by the April due date, then file your return by the extended deadline in October.
This penalty increases to $435 or 100% of the taxes you owe, whichever is less, if you’re 60 days late or more. The penalty applies to all returns due from Jan. 1, 2020 onward.
The Irs Can File On Your Behalf
The IRS usually doesn’t find it worth going back more than six years to collect back bills, even though it has the authority. So just because skipping a year didn’t immediately attract the IRS doesn’t mean you’re off the hook. The IRS even has the power to file a tax return on your behalf, but it won’t include all the deductions and tax credits you or your business are entitled to.
If you want to dispute it, you’ll need records of your own to prove your case. The IRS files some of your records 1099s from your clients, for instance but probably not further back than six years.
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An Offer In Compromise
An offer in compromise is a bit more complex. It involves reaching an agreement with the IRS to pay less than your full balance due. An offer in compromise is typically only approved if youre unable to pay through an installment plan and comes with an application fee. Youll probably need the help of a professional for this option.;
You must establish that you cannot pay your balance through an installment agreement or by any other means. All your past due tax returns must be filed before the IRS can grant you this relief, and you must have made some payment toward taxes in the current year, either through withholding from your paychecks or by sending in quarterly estimated payments, even though you havent filed a tax return for the year yet.
How Do I Pay Quarterly Estimated Taxes
You may have to pay quarterly estimated taxes to avoid a penalty at the end of the year if you don’t have enough taxes withheld from your paycheck, or if you receive income from self-employment or another source that doesn’t withhold taxes on your behalf. Use Form 1040-ES to calculate your estimated taxes, then submit your payments via mail or through the IRS online EFTPS payment portal before the quarterly deadlines.
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How To Track The Progress Of Your Refund
The IRS has eliminated the guesswork of waiting for your tax refund by creating IRS2Go, an app that allows you to track the status of your return. You can also check the status of your refund with the Wheres My Refund? online portal.
Both tools provide personalized daily updates for taxpayers 24 hours after a return is e-filed or four weeks after the IRS has received a paper return. After inputting some basic information , you can track your refunds progress through three stages:
Once your refund reaches the third stage, you will need to wait for your financial institution to process a direct deposit or for a paper check to reach you through the mail.
Theres No Time Limit On The Collection Of Taxes
If you have old, unfiled tax returns, it may be tempting to believe that the IRS or state tax agency has forgotten about you. However, you may still be on the hook 10 or 20 years later. If you don’t file and pay taxes, the IRS has no time limit on collecting taxes, penalties, and interest for each year you did not file.
Itâs only after you file your taxes that the IRS has a 10-year time limit to collect monies owed. State tax agencies have their own rule and many have more time to collect. For example, California has up to 20 years after you file to collect.
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How Many Years Back Can You Get A Tax Refund
The IRS Statute of Limitations allows you three years from the filing deadline to file your prior year return and claim your refund. For example, the last day to claim your tax refund for the 2016 tax year is April 15, 2020. The original tax deadline was April 15, 2017, therefore, you have three years from that date to claim your refund.
Keep in mind that they also have the same amount of time to audit you and up to ten years to collect any unpaid tax. Be advised, the IRS is allowed to hold your refund or take a portion of your refund to pay any past debts.
What Happens If You File Taxes A Day Late
While taxes are one of the few certainties in life, youâre only human if youâve ever looked at the calendar and realized Tax Day is just around the corner â and youâre nowhere near prepared. And in a year like 2021 when the tax deadline has been pushed back to May 17, it can throw off your schedule even more.
But what happens if you file taxes a day late? Here’s what to know.
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Tax Refund Delay: What To Do And Who To Contact
There are many reasons your tax refund could be delayed. Perhaps your numbers and your employers numbers didnt match. Or you accidentally skipped a lineor an entire form. Or maybe you claimed a credit that the IRS takes longer to check. This year, however, the mostly likely reason your tax refund is delayed is that you filed a paper return.There was an additional backlog of tax returns created by the COVID-19 pandemic. While IRS workers have been back at work for a while, there is always a chance this is still impacting your return. Of course, the reasons for a delayed tax refund before the coronavirus crisis may still apply.;Read on for more reasons and how to prevent future delays.
Go beyond taxes to build a comprehensive financial plan. Find a local financial advisor today.
Are There Any Important Tax Dates To Know
Yes, the following dates are important to keep in mind for tax season.;
- Deadline to file;and pay your tax bill if you have one;is May 17, 2021;
- Deadline to file;an extended return;is October 15, 2021
;Click;here;for;a more complete list of;important tax;dates.;
The information in this article is current through tax year 2020.;
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Should You Wait To File Your Taxes
For simple tax situations, filing early may get you a refund sooner. This money belongs to you and doesn’t usually earn interest while in the hands of the IRS.
Filing early also:
- Eliminates the need to file an extension.
- Gives you time to save money for any tax bill you may have. Just because you file early doesn’t mean you need to pay at the same time. Generally, you have until the filing deadline to pay your taxes owed.
Because most taxpayers only need W-2s and 1099s to prepare their returns, all of which must be mailed by the end of January, you usually don’t need to wait to file your tax return. If you find out you received a revised 1099 Form after filing and the change was major, you may need to file an amended return.
If you have an ownership stake in a partnership or other pass-through entity, you may need to wait until at least mid-March to file.
Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we’ve got you covered. Feel confident doing your own taxes.