Should I file my taxes this year?
(NEXSTAR) – Tax season is back, which means millions of Americans are crunching the numbers and turning to accountants or tax-filing software in hopes of a refund. But do you have to declare your taxes?
There are various reasons for not filing. That could include having an income below your standard deduction, only receiving Social Security benefits, or being declared a dependent by someone else, according to TurboTax.
Those who meet these criteria, known as non-filers, were largely unaffected by their status until COVID-19 stimulus payments and advanced child tax credits became available. . Then the IRS relied on tax documents filed in the year or years before payments became available to determine how much each eligible American would receive.
Even if you don’t think you should file a case, or haven’t done so recently, you might want to consider it this year. For 2021, TurboTax reports that you don’t have to file a tax return if you’re under 65, single, earn less than $12,550, and have no special circumstances that require you to file.
Each year, the IRS reports that it has more than $1 billion in unclaimed refunds, with the average refund being around $800, according to Lisa Greene-Lewis, CPA and tax expert at TurboTax. By not declaring, your refund is lost forever.
“A lot of that is from people who think they don’t earn enough to deposit, but they should deposit,” Greene-Lewis told Nexstar. “Especially this year…if they can get the child tax credit, the working income tax credit, and also the third incentive, if they haven’t got it, in the form of a clawback refund.”
In addition to receiving the payments you missed this year, filing this year can prepare you in case future payments become available.
“You file for a variety of reasons,” explained Mark Steber, director of tax information for Jackson Hewitt Tax Services. “Not just to pay your income taxes, but to get into the IRS system to get back money that might have been yours in years past and to get money that might be yours this year through tax law current, current tax relief, current tax credit that you may not even know about.
What happens if I don’t file my taxes?
Although you are losing money that belongs to you, there are few consequences to not filing your taxes, as long as you don’t owe them.
Some licenses or certifications require filing a tax return, Steber said, but there is no penalty under federal rules. It varies in some states – some have rules about not filing – whether or not you receive a refund.
On the other hand, if you owe taxes, the penalties can be more severe. The consequences can range from financial penalties to criminal liability, according to Steber.
“If you owe taxes, even if you can’t pay, it’s never a good idea not to declare,” he added. The IRS offers several payment plans and, in some cases, can waive taxes in hardship. “You must deposit whether you can pay or not, as this will end the failure to deposit penalty from the outset.”
You can also be penalized with default, which is “calculated and applied separately,” according to Steber.
The failure to file penalty is based on how late you file your return and the amount of unpaid tax by the initial payment due date. The penalty is 5% of unpaid taxes for each month, or part of a month, that a tax return is late. It can be combined with a default penalty, which is based on how long your overdue taxes remain unpaid, the IRS says. For each month, the penalty will be 0.5% of your unpaid taxes.
No penalty will exceed 25% of your unpaid taxes, according to the IRS, but the costs can add up quickly.
Ultimately, Greene-Lewis and Steber recommend filing your taxes regardless of how little income you earned. If you are unsure whether or not you should file, we encourage you to speak with a tax expert.