Only two things are certain in life: death and taxes.
Taxes have been a source of contention between people and their governments since the dawn of civilization. Some people want to pay more taxes in exchange for more benefits, while others don’t want to pay them at all.
Regardless of your feelings about taxes, if you live in a civilization, you are going to have to pay them.
You might be tempted to simply not file your taxes. Even if you’re rich and famous, the tax man will come for you.
If you’re curious about what happens if you don’t pay taxes, keep reading. We’ll break down some of the potential consequences of failing to pay your taxes.
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What Happens if You Don’t Pay Taxes?
The consequences that you could face if you don’t pay your taxes are much worse than any benefit you could experience. Note that not all of the possible consequences will apply to each tax evader because each individual situation is different.
Keep reading to learn more about what could happen if you don’t pay taxes.
There is a difference between failing to file your taxes and failing to pay them.
If you don’t even file your taxes, you will be assessed a penalty. This amount is usually 5% of the tax amount owed, up to five months past the filing deadline.
The minimum penalty is either $135 or 100% of the amount you owe, whichever is less.
If you do file but don’t pay, you’ll be charged a penalty as well as incur interest on the amount owed.
If you don’t pay your taxes, you will pay interest in addition to penalty fees.
The IRS does not have the ability to waive interest, so you won’t be getting out of paying. The interest rate will be determined by the current federal short term rate plus an additional 3%.
This comes out to between 4-6% interest.
Mail from the IRS
If you owe the IRS, they are going to start contacting you, usually via mail.
This is their first step before they take action to collect what they are owed from you. The IRS will give you several chances to pay what you owe before things get ugly.
Ignoring their communication will put you in a worse position. Don’t ignore these letters.
They require a timely response. Your best course of action at this time is to respond to the IRS and explain your situation and arrange to pay what you owe.
Losing Your Refund
If you owe the IRS, they are not going to give you any money, even if it’s owed to you.
For example, if you owe money from a previous year but did file this year and are owed a refund, the IRS will keep your refund and apply it to the amount owed.
They will not give you a refund until you settle your tax debt.
The Federal Payment Levy Program
This is a federal program that allows the IRS to come after some of your assets.
Of course, they must notify you first, but if you fail to respond, some of your assets are vulnerable. There are restrictions on what they can take.
They can’t take work tools, benefits paid to your children, or prevent you from earning money. They can, however, take your benefits including social security.
The IRS can have a lien against your property.
The lien is a declaration of the IRS’s claim to your property with regard to your other creditors. The lien is public and can be filed to other creditors, landlords, and employers.
If you receive a notice of a lien on your property from the IRS, do not ignore it.
Lowered Credit Score
If you owe money to the IRS or have a tax lien, the debt will be reflected on your credit report and will negatively impact your credit score.
Tax debt is not considered good debt. Basically, failing to pay your taxes could cause long term damage to your credit score and financial outlook.
As discussed above, an IRS lien is their claim to your property. The IRS can also levy, or take your property.
They can take your house, your car, your income, or your bank account. They will sell whatever assets they can.
If you can prove economic hardship and that a levy would prevent you from meeting basic living expenses, you might not be subject to having certain assets seized. Check out these reviews for help resolving your debt if you are experiencing hardship.
The IRS might summon you to appear in front of an IRS officer to present your documents and records and possibly testify.
They can also summon record keepers from financial institutions you use or third party persons with information about your finances to provide information about your case without telling you.
Going to Jail
This is usually the biggest concern people have about not paying their taxes.
While the chances of going to jail for not paying your taxes is low, it is possible. If you have good intentions and have simply made a mistake, you are probably in the clear.
If you have clearly attempted to defraud the government and there is a pattern of wrongdoing and dishonesty, the IRS may pursue jail time.
Paying Your Taxes
Now that you know what happens if you don’t pay taxes, hopefully you won’t have to find out for yourself.
In almost every case, paying your taxes right away is the best case scenario. If you truly can’t afford to pay your taxes, contact the IRS as soon as possible to establish a line of communication.
If you owe the IRS, consider hiring a tax attorney.
For more lifestyle advice, check out our blog.