What happens if you don’t file your taxes? IRS fees & penalties explained
This article is for informational purposes only and does not constitute legal advice.
Always consult with a tax professional for your specific circumstances.
If you're a US citizen or resident alien living abroad, you’re likely aware of your obligation to file US tax returns annually.
However, if you’ve overlooked this requirement, the IRS imposes penalties and fees that can add up quickly.
In this guide, we break down the consequences, provide information on how to get back into compliance, and highlight ways to minimize your penalties.
Why filing your US expat tax return matters
Even if you live abroad and pay taxes to your host country, you are still required to file a US tax return.
The US tax system is based on citizenship, meaning your tax obligations follow you wherever you live.
Beyond staying compliant with the law, filing ensures you can:
- Claim foreign tax credits: To avoid double taxation on the same income.
- Access Refunds: If you’re eligible for refundable credits such as the Child Tax Credit.
- Utilize the Foreign Earned Income Exclusion (FEIE): Excluding up to $120,000 of your foreign income (as of 2025) from US taxation.
IRS penalties for not filing your taxes
Failing to file your taxes can lead to significant financial penalties.
Here’s a breakdown of what you might face:
1. Failure-to-file penalty
The IRS charges 5% of your unpaid taxes for each month (or part of a month) that your tax return is late, up to a maximum of 25%.
- Example: If you owe $10,000 in taxes and file four months late, your penalty would be $2,000.
- Minimum penalty: If your return is more than 60 days late, the minimum penalty is $435 or 100% of your unpaid tax, whichever is less.
2. Failure-to-pay penalty
This penalty is 0.5% of your unpaid taxes for each month the payment is late, up to 25%.
- If both filing and payment are late, the combined penalty is capped at 5% per month.
3. Interest charges
The IRS also adds interest on unpaid taxes and penalties, calculated daily at the federal short-term rate plus 3%.
This can significantly increase your total liability over time.
What about FBAR and FATCA penalties?
If you have foreign financial accounts with an aggregate value of more than $10,000 at any time during the year, you must file an FBAR (Foreign Bank Account Report).
Additionally, you may need to file Form 8938 under FATCA (Foreign Account Tax Compliance Act).
FBAR penalties:
- Non-willful violations: Up to $10,000 per violation.
- Willful violations: Greater of $124,588 or 50% of the account balance per violation.
FATCA penalties:
- $10,000 for failing to file Form 8938, with additional penalties up to $50,000 for continued failure after notification.
Automatic extensions for expats
As an expat, you automatically receive a two-month filing extension, giving you until June 15 to submit your return.
However, any taxes owed are still due by April 15 to avoid interest charges. If needed, you can request an additional extension to October 15 by filing Form 4868.
How to get back on track: Streamlined filing compliance procedures
If you’ve missed filing deadlines, the IRS offers a lifeline through the Streamlined Filing Compliance Procedures, designed specifically for non-willful non-compliance.
Eligibility: Available to taxpayers who were unaware of their filing obligations and can certify their non-compliance was non-willful.
This includes expats who misunderstood their filing requirements or were unaware of the need to report foreign income or accounts.
What it does:
- Waives failure-to-file and failure-to-pay penalties, providing significant relief.
- Requires submission of the last three years of federal tax returns and six years of FBARs (Foreign Bank Account Reports).
- Ensures you regain good standing with the IRS while claiming deductions and exclusions like the FEIE or Foreign Tax Credit, which can significantly reduce your tax liability.
Additional Benefits: If you're eligible, the IRS does not initiate additional scrutiny or audits related to these filings, making it a low-risk way to correct past errors.
This is an excellent opportunity for expats to get back into compliance without harsh penalties, regain peace of mind, and avoid potential passport revocation or account freezes.
Filing past-due tax returns
If you’ve missed deadlines, here’s what you should do:
- File as soon as possible: Filing reduces the Failure-to-File penalty.
- Pay what you can: Paying even a partial amount reduces interest and the Failure-to-Pay penalty.
- Set up a payment plan: The IRS offers installment agreements for taxpayers who cannot pay in full.
- Seek professional assistance: A tax professional can help ensure all deductions and credits are claimed, potentially reducing your tax liability.
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Consequences of ignoring IRS notices
Failing to respond to IRS notices can lead to:
1. Substitute for Return (SFR)
The IRS may file a tax return on your behalf if you fail to do so.
This substitute return is based on information the IRS has and typically does not include deductions, exemptions, or credits you may be eligible for, potentially resulting in a higher tax liability than if you had filed yourself.
2. Wage garnishment or bank levies
To collect unpaid taxes, the IRS can legally seize a portion of your wages directly from your employer (wage garnishment) or withdraw funds from your bank accounts (bank levies) without a court order.
This can create financial hardship and affect your credit score.
3. Revocation of passport
If you owe $59,000 or more in unpaid taxes, including interest and penalties, the IRS can certify your debt to the State Department.
Consequently, your US passport may be denied, revoked, or limited, restricting your ability to travel internationally.
4. Criminal charges
While rare, in cases of willful tax evasion or fraud, the IRS can pursue criminal charges against you.
Convictions can lead to fines up to $250,000 and imprisonment for up to five years, highlighting the seriousness of intentionally avoiding tax obligations.
How we help
At TFX, we specialize in helping US expats navigate complex tax requirements.
With over 20 years of experience and a 90% client retention rate, we’ve helped thousands of expats file returns, resolve IRS issues, and minimize penalties.
- No robots: Every client works with a dedicated human expert.
- Long-term relationships: We’ll be there year after year to handle your taxes.
- Comprehensive support: Whether you need help filing for the first time or navigating the Streamlined Procedures, we’ve got you covered.
Bottom line
Filing your expat tax return may feel overwhelming, but ignoring it can lead to serious financial and legal consequences.
By addressing your tax obligations proactively and seeking professional help, you can avoid penalties, reduce your liability, and achieve peace of mind.
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FAQ
If you can’t pay your full tax liability, the IRS offers several payment options:
- Installment Agreements: Pay your debt over time in monthly installments.
- Offer in Compromise: Settle your tax debt for less than the full amount owed if you meet eligibility criteria.
- Temporary Delay: If paying would cause financial hardship, the IRS might delay collection efforts.
Filing on time, even without payment, helps you avoid the hefty Failure-to-File penalty.
Yes. Even if your income is below the FEIE threshold (e.g., $120,000 in 2025), you must still file a return to claim the exclusion. Failing to file means you cannot retroactively claim the exclusion.
The IRS has several tools to detect unreported foreign income:
- FATCA Agreements: Foreign financial institutions report account information directly to the IRS.
- FBAR Filing Requirements: Financial accounts exceeding $10,000 must be reported annually.
- Data Matching: The IRS cross-references data from other countries and financial institutions.
It’s always better to proactively disclose than risk being discovered.
Yes, US expats can file online using services like TFX or IRS-approved tax software. However, given the complexities of expat taxes (e.g., FEIE, FBAR, FATCA), professional guidance ensures you claim all deductions and avoid errors.
The IRS can typically audit or assess additional taxes for up to three years after a return is filed. However:
- No Return Filed: No time limit.
- Substantial Underreporting: If more than 25% of income is omitted, the limit is extended to six years.
It depends. Some states, like California and Virginia, require you to file state taxes even if you reside abroad. Others, like Texas or Florida, have no state income tax. A tax professional can help determine your obligations.
Failing to file FBARs (for foreign accounts exceeding $10,000) or Form 8938 (FATCA) can result in:
- FBAR Penalties: Up to $10,000 for non-willful violations; higher for willful violations.
- FATCA Penalties: Starting at $10,000, with potential additional penalties up to $50,000.
No. The Streamlined Procedures are only available for taxpayers whose failure to file was non-willful (e.g., due to lack of awareness). Willful non-compliance may require alternative programs like the IRS Voluntary Disclosure Program.
The IRS can typically audit or assess additional taxes for up to three years after a return is filed. However:
- No Return Filed: No time limit.
- Substantial Underreporting: If more than 25% of income is omitted, the limit is extended to six years.
Possibly. US taxes may apply to Social Security benefits, and foreign pensions may be taxable, depending on the tax treaty between the US and your host country. Always consult a tax expert to understand your obligations.