If you’re struggling financially, filing your taxes might be the last thing on your mind. After all, what’s the point of filing if you can’t afford to pay what you owe? Many Americans ask this very question, and unfortunately, many make the mistake of ignoring their tax obligations as a result.
But here’s the truth: filing all your tax returns is crucial, even if you can’t pay. The consequences of not filing can be far more damaging than simply owing money to the IRS.
The Common Misconception About Filing and Paying Taxes
One of the biggest misunderstandings about taxes is the assumption that filing and paying are the same thing. They’re not. Filing your tax return is simply the act of reporting your income and tax obligations to the IRS. Paying is a separate step.
Many taxpayers skip filing because they believe there’s no point if they can’t send a check along with it. However, this mindset can set off a chain reaction of penalties, interest, and even legal consequences.
Filing and Paying Are Separate Responsibilities:
- Filing shows the IRS your income and tax liability.
- Paying satisfies your debt, which can be done later or through a payment plan.
Filing, even without payment, helps you stay compliant and protects you from harsher consequences.
What Happens If You Don’t File Your Taxes
Not filing your tax return can trigger more severe consequences than not paying. While the IRS can work with you on payment, they are far less forgiving when it comes to failure to file.
What’s the Difference Between IRS Late Filing Penalties and Late Payment Penalties?
Understanding the difference between these two types of penalties can save you from unnecessary financial stress. While both penalties apply when you don’t meet your tax obligations, they’re triggered by different actions, and one is significantly more costly than the other.
Late Filing Penalty
This penalty applies when you fail to submit your tax return by the deadline (typically April 15, unless extended).
- Rate: 5% of the unpaid tax amount per month (or part of a month) that the return is late.
- Maximum: Capped at 25% of the total unpaid taxes.
- Example: If you owe $5,000 and file three months late, you could be charged 15% ($750) in penalties, on top of your original balance and accruing interest.
Late Payment Penalty
This penalty kicks in when you file your return on time but don’t pay your tax bill by the due date.
- Rate: 0.5% of the unpaid amount per month, also up to a 25% maximum.
- Much lower monthly cost than the late filing penalty.\n- Example: Owe $5,000 and pay three months late? That’s only 1.5% ($75) in penalties—far less than the late filing penalty.
Filing late is more expensive than paying late. If you can’t pay your full tax bill, it’s far better to file your return on time and work with the IRS on a payment plan.
Interest accrues on top of both penalties, so delaying filing increases your overall debt quickly.
Filing triggers the start of the IRS statute of limitations for audits and collections, another reason why timely filing is essential.
If you’re in a tough spot and can’t afford to pay your taxes, file your return anyway. The late filing penalty is 10 times higher per month than the penalty for late payment. Filing helps you stay in compliance and opens the door to IRS relief options like payment plans or hardship status.
Risk of Losing Refunds or Credits
If the IRS owes you a refund and you don’t file within three years, you lose the right to that money. Plus, unfiled returns may disqualify you from tax credits like the Earned Income Tax Credit (EITC).
Statute of Limitations Doesn’t Start Until You File
You might think the IRS will forget after a few years, but the statute of limitations on collections or audits doesn’t begin until you file a return. Unfiled returns leave you exposed to IRS action indefinitely.
Why Filing Is the First Step to Resolving Tax Debt
Even if you can’t pay right away, filing your return puts you on the path to resolving your tax situation.
Filing Keeps You Compliant
Being compliant is the first requirement for accessing IRS relief programs. If you don’t file, you can’t qualify for any assistance.
Enables Access to IRS Payment Plans
The IRS offers several options for taxpayers who owe money, but you must file all required returns to apply.
Protects You From Criminal Penalties
Failure to file is considered a federal offense. While rare, criminal charges can be brought against individuals who willfully fail to file for several years.
IRS Payment Relief Options You Can Explore After Filing
Once you’ve filed your returns, the IRS offers several programs to help you settle your tax debt over time.
Installment Agreements
Pay your tax debt over time in monthly installments. The IRS has streamlined options for those who owe less than $50,000.
Offer in Compromise (OIC)
This program allows you to settle your tax debt for less than you owe if you meet strict eligibility requirements. It’s ideal for those who can prove financial hardship.
Currently Not Collectible Status
If you truly can’t pay anything due to hardship, the IRS may temporarily halt collection efforts by placing your account in “currently not collectible” status.
How to File If You Owe and Can’t Pay
Filing your return isn’t as intimidating as it may seem, even when you know a balance will be due.
Filing Options
- E-file through the IRS Free File program if you qualify.
- Use tax software that walks you through the process.
- Hire a tax professional for expert advice and support.
What to Do Immediately After Filing
- Review your tax liability.
- Apply for a payment plan or hardship program.
- Stay in touch with the IRS to avoid default.
Communicating With the IRS
Don’t ignore IRS letters. Open them, read them carefully, and respond. The IRS is often willing to work with honest taxpayers who make an effort.
Conclusion
Even if you can’t pay your taxes today, filing your returns is the smartest step you can take. It keeps you compliant, reduces penalties, and opens the door to debt relief programs. Ignoring your filing obligations, on the other hand, leads to steeper penalties, interest, and potentially life-altering consequences.
Written by: Thomas Brooks
Published: October 20, 2025