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I have a friend who works as a teacher. He claims that for several years he has made money and paid all the income tax that he owed and maybe a bit more. He has not filed an income tax return. I do not think this is wise. However, I believe he has not broken the law. Has he?

I live in the United States.

Note: I am talking about Federal Income Tax not state or local income tax.

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  • Comments are not for extended discussion; this conversation has been moved to chat.
    – Pat W. ♦
    Commented Jul 20, 2021 at 18:16

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It isn't "illegal" but there are negative consequences to doing so.

The civil penalties for failure to file a tax return are a percentage of the tax not paid (5% per month up to a maximum amount, plus interest). There is a small penalty for not filing an information tax return (like a 1099) when you have to file one and don't owe money, but there is usually not such a nominal fine for a personal form 1040.

The statute of limitation on IRS efforts to audit a tax return or to impose additional tax for additional amounts owed doesn't begin to run until a tax return is filed.

Criminal penalties require an intent to deprive the government of money.

If he had more withheld than he owed, he probably isn't subject to any realistic significant civil or criminal consequences, but it is highly risky if he actually owed more than was withheld from his paychecks, and it deprives him of an ability to get refunds if too much was withheld (and possibly also stimulus check refunds) after three years.

The issue here is really that it is hard to see that the downsides of not filing a tax return are hard to match to the benefits of filing a tax return, which for a wage and salary earning teacher, are very slight (you could pay someone to do it for $100-$300).

Also, the lack of tax returns could hurt the teacher if the teacher ever has to apply for credit or get divorced or file for financial aid for the teacher's own kids to go to college.

Of course, if he had lots of unreported side income, upon which he has not paid taxes, then there are serious civil and criminal consequences.

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  • There could be reasons for not filing tax return despite paying correct amount of taxes. For example, some people resent the intrusive questions on tax forms, some of them having no relevance to the taxable amount. One may not want disclosing foreign assets or may be distrustful of IRS not leaking his kids' names and SSN via hackers, etc. If there is no penalty for paying one's taxes without filing tax returns full of sensitive information some people may prefer that.
    – Michael
    Commented Jul 22, 2021 at 23:15
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    @Michael "One may not want disclosing foreign assets" Failing to disclose foreign assets gives rise to an extremely serious penalty, whether or not you file a tax return. And, if the IRS doesn't know you have kids, you can't claim the tax benefits for having them resulting in massive overpayment of tax (or will be audited and have to turn over the information anyway). Almost nothing on a tax return that you have to fill out has no relevance to the taxable amount. Resentment is not a legitimate reason not to file your taxes.
    – ohwilleke
    Commented Jul 22, 2021 at 23:19
  • @ohwileke, what business does IRS have knowing about your assets, foreign or domestic, that don't generate income? If your possession doesn't alter the amount of taxes owed isn't the requirement to disclose it an unwarranted intrusion into your private business that should have no relevance to IRS?
    – Michael
    Commented Jul 22, 2021 at 23:57
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    @Michael Congress has passed a law requiring this information to be disclosed, in an efforts to defeat tax non-reporting, money laundering, and terrorism funding.
    – ohwilleke
    Commented Jul 23, 2021 at 0:01
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If you have prepaid all the taxes you will owe for the year, (i.e. so the IRS owes you money once you file), the following fee schedule applies for filing late:

 10 days             $0
 30 days             $0
 6 months            $0
 1 year              $0
 2 years             $0
 per year after 2:   $0

So, the IRS doesn't care. What has happened, in effect, is that the IRS has prepared your friend's taxes using W-2 and 1099 data.

However, there are more serious consequences because of the lack of past filings. By not filing, your friend is likely also excluded from certain beneficial programs, such as the several rounds series of "stimulus checks" mailed out for COVID.

The tax refund owed to the teacher may be much larger than expected - people are blind-sided by this all the time.

If the teacher starts to have significant gains in side income on which estimated tax must be paid, there is no "safe harbor" based on last year's taxes, because there is no "last year's taxes".

These side-effects are almost unforeseeable, so the safe play is to file the taxes.

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    Do you have a source for this fee schedule?
    – Nate Eldredge
    Commented Jul 20, 2021 at 14:24
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    Wouldn’t it be easier to just state that penalties for failing to file are a percentage of owed taxes? irs.gov/payments/failure-to-file-penalty “The Failure to File Penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won't exceed 25% of your unpaid taxes.”
    – ColleenV
    Commented Jul 20, 2021 at 16:59
  • @NateEldredge see ColleenV's comment. Interest and penalty are each a percentage of unpaid tax. If tax is fully prepaid, unpaid tax is zero.
    – phoog
    Commented Jul 20, 2021 at 17:30
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If he has the taxes withheld from his pay and it covers whatever is owed, he really doesn't have to file a return. If he is due a refund, then he would be stupid not to file and get that back. The IRS may send him a letter at some point asking why he hasn't filed a return. If he has a perfectly good reason he can simply respond and they'll let it go.

I know this from experience. I have been retired for about 20 years and live with my wife who also doesn't work. All our income is from investments and usually ends up less than the total of the standard deductions (less than $20K). We have no tax withheld and would not receive a refund, but we also won't have to pay any as our income is low enough. I have not filed a return several years when it just wasn't needed. At one point the IRS sent me the letter asking why I didn't file. I replied and explained the situation and they left me alone.

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    There's an explicit rule that taxpayers with gross income less than a certain amount (I think equal to the standard deduction) are not required to file; see IRS Pub. 501, Table 1. It sounds like this applies to you, but probably not to OP's friend.
    – Nate Eldredge
    Commented Jul 20, 2021 at 14:24
  • We have to guess at the OP's post as it leaves out some important info. How much did this guy make/how much was withheld in taxes/is he married-does his spouse work/does he have kids/does he have other sources of income and are they taxable?
    – gumpster6
    Commented Jul 20, 2021 at 14:43
  • Did you receive the stimulus payments?
    – Harper - Reinstate Monica
    Commented Jul 20, 2021 at 17:27
  • I did receive the first two stimulus payments even though I did not file 2018 or 2019 returns (I did file 2017). The only reason I filed for 2020 was because of the third stimulus payment (no taxes due or any regular refund). My wife received matching stimulus payments.
    – gumpster6
    Commented Jul 21, 2021 at 18:26

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