(NEXSTAR) – Tax season is back again, which means millions of Americans are crunching the numbers and turning to accountants or tax filing software in the hopes of a refund. But should you file taxes?
There are various reasons to not file. That could include having income lower than your standard deduction, receiving only Social Security benefits or being claimed as a dependent by someone else, according to TurboTax.
Those that 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 the payments were available to determine how much each eligible American would receive.
Even if you don’t think you should file, or haven’t recently, you may want to consider it this year. For 2021, TurboTax reports you do not have to file a tax return if you are younger than 65, single, earn less than $12,550, and don’t have any special circumstances that require you to file.
Every year, the IRS reports that it has over a billion dollars in unclaimed refunds, with the average refund being around $800, according to Lisa Greene-Lewis, a CPA and tax expert with TurboTax. By not filing, your refund is gone forever.
“A lot of that belongs to people who think they don’t make enough to file, but they should file,” Greene-Lewis told Nexstar. “Especially this year … if they can get the child tax credit, the earned income tax credit, and also the third stimulus, if they didn’t get that, in the form of a recovery rebate.”
In addition to getting payments you missed out on this year, filing this year can prepare you in case any future payments become available.
“You file for a variety of reasons,” Mark Steber, chief tax information officer for Jackson Hewitt Tax Services explained. “Not just to pay your income taxes, but to get on the IRS system to recover money that might have been yours from years past and to get money that might be yours this year from a current tax law, current tax break, current tax credit that you might not even know about.”
What happens if I don’t file taxes?
While you’ll miss out on money that belongs to you, there are few consequences for not filing your taxes, as long as you don’t owe any.
Certain licenses or certifications require a tax return to be filed, Steber said, but there is no penalty under the federal rules. This does vary in some states – some have rules about failure to file – regardless of whether or not you are getting a refund.
On the other hand, if you owe taxes, the punishments can be more severe. 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 to not file,” he added. The IRS offers multiple payment plans and, in some cases, may forgive taxes in cases of hardship. “You should file, regardless of whether you can pay or not because that will stop the failure to file penalty right out of the gate.”
You can also be penalized with failure to pay, which is “separately calculated and separately enforced,” according to Steber.
The failure to file penalty is based on how late you file your return and the amount of unpaid tax as of the original payment due date. The penalty is 5% of the unpaid taxes for each month, or part of a month, that a tax return is late. It can be combined with a failure to pay penalty, which is based on how long your overdue taxes remain unpaid, the IRS states. For each month, the penalty will be 0.5% of your unpaid taxes.
Neither penalty will exceed 25% of your unpaid taxes, according to the IRS, but the costs can add up quickly.
Ultimately, both Greene-Lewis and Steber recommend filing your taxes, regardless of how little income you’ve earned. If you’re uncertain about whether or not you should file, you’re encouraged to speak with a tax expert.