Being behind on filing is more common than most people think, and it’s fixable. The order matters: file first, then resolve what you owe.
Why filing comes first
- It stops the biggest penalty. The failure-to-file penalty is 5% of the unpaid tax for each month a return is late, up to 25%. That’s ten times the monthly late-payment penalty.
- It unlocks the IRS’s easy options. The Simple Payment Plan, which needs no financial statement for balances of $50,000 or less, requires every return to be filed. So do Offers in Compromise and most other agreements.
- It replaces the IRS’s version. If you don’t file, the IRS may prepare a substitute for return using only the income reported to it, usually without the deductions and credits you could claim.
- It protects refunds and benefits. Refunds are lost after three years, and self-employed people who don’t file don’t earn Social Security credit for that income.
What the IRS does if you don’t file
The IRS compares your records with income reported by employers, banks and others. When a return is missing, it sends letters, starting with a CP59, then reminders and a final reminder (CP518). It may then calculate your tax itself and send a Notice of Deficiency, CP3219N. Once that tax is assessed, collection can follow: liens, and levies on wages and bank accounts. See what happens if you don’t file.
How to catch up
- Find out which years are missing. Your IRS account transcripts show which years have a return on file.
- Get the income the IRS has on record for each missing year: wage and income transcripts list your W-2s, 1099s and other reported income.
- Rebuild each year, adding what the IRS doesn’t know about, such as business expenses and dependents.
- File. The current year and the two years before it can be e-filed. Older years go on paper. See paper filing for older years.
- Resolve the balance once the returns post, with a payment plan or another option.
You can do this yourself, especially if you only have a year or two of W-2 income. It gets harder with several years, self-employment income, or missing records. That’s what our catch-up filing service is for.