It’s not only millionaires that the IRS has its sights set on this tax season. If you make at least $400,000 — and haven’t filed federal tax returns — you may receive a compliance letter from the agency. This new initiative focused on wealthy non-filers is part of the IRS’ ongoing efforts to improve tax enforcement for millionaires and other high earners and ensure fairness in the federal tax system.
“If someone hasn’t filed a tax return for previous years, this is the time to review their situation and make it right,” IRS Commissioner Danny Werfel said.
The more than 125,000 high-earning non-filers on the IRS’ mailing list might want to take Werfel’s advice. If wealthy non-filers ignore a compliance letter to file past tax returns (CP59 notice), the IRS could take further actions, including creating a substitute tax return.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Here’s what you should know.
IRS tax enforcement if you fail to file
Not filing your federal tax return by the due date each year is considered tax evasion by the IRS. The agency is now looking all the way back to 2017 and has identified more than 125,000 high earners who have failed to file returns. Most of these 'wealthy tax cheats' make between $400,000 and $1 million a year.
The agency is sending between 20,000 and 40,000 compliance letters to these non-filers each week. If recipients of these notices don’t take action, the IRS will step up its enforcement efforts.
- Non-filers could be subject to an IRS audit.
- Failing to file back tax returns could lead to further IRS collection efforts, including wage garnishments and levies.
- The IRS might create a substitute for return (SFR), which often results in owing more tax than you would if you filed yourself.
What happens if the IRS files a substitute for return? The IRS can use your W-2s, 1099s, and information from your financial institutions to file your tax return for you. When this happens, you’ll miss out on claiming any tax deductions and credits you’re entitled to. So, it’s in your best interest to speak with a tax professional and file prior-year tax returns as soon as possible.
File back taxes
Filing back taxes now could prevent you from facing the unwanted consequences listed above. And because penalties will continue to accrue, the sooner you file, the more money you will save.
- The failure-to-file penalty is 5% of the amount owed every month (up to 25% of your tax bill).
- The IRS charges interest on failure-to-file and failure-to-pay penalties.
Taxpayers making less than $400,000 per year are also subject to substitutes for returns, penalties, interest charges, audits, and levies. So, it’s important to file back taxes and “make things right,” as Werfel says, whether or not you are wealthy.
Taxpayers who haven’t filed prior-year returns can visit the IRS’ Filing Past Due Returns page for information about how to file prior returns and avoid additional consequences and fees.
Related Content
-
Try the 6 to 1 Grocery Shopping Method to Save Time and MoneyThe 6 to 1 Grocery Method can help you save money, reduce waste and eat healthier.
-
Ford Stock Plunges on Earnings Miss: What to KnowFord stock is down big Thursday after the automaker fell short of earnings expectations for its second quarter. Here's what you need to know.
-
IRS Ends Inherited IRA Confusion: Annual RMDs Required for ManyIRAs The agency has resolved a major point of uncertainty for inherited IRA beneficiaries.
-
$145 Million in ‘Senior Freeze’ Checks MailedProperty Tax What you need to know about New Jersey's property tax relief program for older adults.
-
TaxAct Class Action Settlement: Details to KnowTax Filing A multimillion-dollar settlement over alleged data privacy violations affects some TaxAct users.
-
An IRA Contribution Option You Might Not KnowIRAs Retirement savings might not have to take a back seat just because your partner doesn't earn income.
-
Project 2025 Tax Overhaul Blueprint: What You Need to KnowTax Proposals Some people wonder what Project 2025 is and what it suggests for taxes.
-
The Taxes That Come out of Your PaycheckPayroll Tax Your take-home pay is often less than expected due to several payroll tax withholdings you need to know.
-
Seven States Where Gas Tax Increased July 1Gas Taxes Since July has arrived, drivers in several states are facing a gas tax hike.
-
401(k) Withdrawal Penalty Rule Changes for 2024Tax Rules More people are taking early emergency withdrawals from retirement savings accounts. New rules might offer some relief.
