File your tax returns really late and you may lose out on credit for toward your Social Security.
Betcha didn’t know there was a connection between income taxes and your Social Security benefits. This was a new one for me.
I’ve written often about the negative consequences of putting off filing tax returns. But Harvard Law professor Keith Fogg pointed out another “gotcha”:
A self employed tax payer does not get credit for contributing to Social Security for the four quarters of the tax year if the self tax return if filed more than three years after it was originally due
Ouch! You owe the tax and even if you pay the tax, it does not count toward your eligibility for Social Security.
So you may come up short, not because you didn’t work, or pay the tax, but because you didn’t file a timely return.
The self employed pay both the employee and the employer’s share of Social Security contributions on their income tax return.
In order to draw Social Security based on age, you need to have contributed to the system for 40 quarters. To qualify for Social Security disability, you need 32 quarters of contributions.
Defenses & exceptions to the rule from Procedurally Taxing
If you’re self employed and your tax returns are filed more than 3 years late, the quarters in that tax year don’t count for either eligibility nor for lifetime contributions.
No refund for the tardy
Your tax refund is another benefit you lose out on when a return is first filed more than three years after it was due.
This rule applies to all taxpayers, not just the self-employed. No matter the size of the refund you would have otherwise received, miss the three year statute, and you can kiss the refund goodbye.
Tax delinquencies drive bankruptcy filings
I’m a crusader for filing tax returns because most taxes for which a tax return is filed are ultimately dischargeable in bankruptcy. It’s a myth that you can’t discharge taxes in bankruptcy.
There are timing issues, but the central premise is that only taxes for which an honest return has been filed are dischargeable.
So, for all these reasons, file the return, even if you can’t pay the tax right now.
Don’t buy these myths about taxes and bankruptcy