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Believe it or not, this is a common problem. If it has happened to you, you should not panic, but rather, reach out for help. Here is a general guideline as to what you should do. If you have not filed your taxes in several years, you should consider (1) whether you are required to file, and (2) if you are required, why you did not file.
The first step is determining whether you are required to file. The Internal Revenue Service (IRS) classifies individuals into two groups: (1) those who must file and (2) those who should file. Those who are required to file meet a specific income and age requirement based on their filing status.
For example, you are required to file a 2020 return if you are “single,” earned at least $12,400, and are under the age of 65. It is a crime not to file a required tax return and you can be fined or prosecuted for failing to file. You may not be required by law to file if you fall under this income threshold.
However, even if you are not required to file, there may be some benefits. For example, you may fall in this category if you do not meet the income requirement but have had taxes withdrawn from your paycheck. Filing a return will allow you to receive those withheld taxes as a refund. Additional examples include if you qualify for healthcare, education, and child tax credits, or if you’ve received a 1099-B tax form.
By filing, you may also become eligible for certain tax credits, such as the Economic Income Payment (“EIP”), commonly referred to as the federal stimulus payment. If you have not filed your tax return in several years and not receive your EIP, you should file a 2020 tax return to request a “Recovery Rebate Credit” on your tax form. Seek aid from a reputable tax preparer in order to complete your return accurately.
If you are required to file, the next step is determining why you did not file. You may have avoided filing taxes altogether because the process is intimidating and cumbersome. Perhaps you fear that you will be unable to afford tax payments to the IRS, so you further delay filing in hopes the IRS does not become aware that you owe.
If you believe that you owe taxes to the IRS from previous years that you had not filed, and are worried you are unable to pay, you should still file and seek assistance after filing.
While waiting to file until you can afford to pay seems logical, it is not the best approach to take. Waiting to pay a tax balance leads to penalties and interest on this balance, leading to an even higher amount due. Even if you can’t afford the amount due when you file, you can seek assistance from a Low-Income Taxpayer Clinic (LITC) to help you determine a solution.
Sometimes you can negotiate a lower payment, or an installment plan to deal with the balance due. The most important thing is to not ignore it. It is always best to file even if you cannot afford to pay.
Maryland Volunteer Lawyers Service (MVLS) has a Low-Income Taxpayer Clinic that can address tax issues. MVLS can be reached at 410-547-6537 Monday to Thursday from 9 a.m. to 12 p.m. and at www.mvlslaw.org.
Janice Shih is the director of the Low-Income Taxpayer Clinic at Maryland Volunteer Lawyers Service (MVLS) and Kelsey Creed is a legal intern at MVLS.