What Happens if You Don’t Pay Your Taxes?  

Fulfilling your tax obligations is essential for any responsible citizen or business. Unfortunately, there are those who choose not to pay their taxes, or fail to file their returns on time, resulting in significant consequences. In this article, we’ll explore what happens if you don’t pay your taxes and the potential repercussions of not paying them in full.

The Potential Consequences of Not Paying Your Taxes  

Unpaid taxes can come with serious penalties. Depending on the severity of your situation, and whether you’re dealing with the Internal Revenue Service (IRS) or a state taxing agency, you may face any of the following potential penalties and consequences:

  1. Late payment penalties

If you haven’t been able to pay your taxes in full, you may face a late payment penalty. The exact tax penalty you face will depend on your state or the IRS. Generally, it will be based on a percentage of the taxes due and the number of days that have passed since the filing or payment deadline. The longer you wait, the more you will end up owing in penalties.

  1. Interest charges

In addition to late payment penalties, interest will accrue if you fail to pay your taxes. This interest is assessed on a daily basis until the debt is resolved. The interest rate is determined by the IRS each quarter and can range anywhere from 4% to 9%.

  1. Wage garnishment

In some cases, the Internal Revenue Service or state tax authority can impose wage garnishment to help cover the cost of unpaid taxes. This means that a certain percentage of your wages will be deducted every month to cover your tax debt.

  1. Federal and state tax liens

If you’re unable to make arrangements to pay your taxes, the government may pursue a tax lien. A lien places a legal claim against your assets such as a house, vehicle or other property. This means that if you decide to sell said assets, a portion of the proceeds will go towards paying your tax debt.

  1. Bank levies

If you don’t pay your taxes, the IRS has the right to issue a bank levy. This would allows them to freeze one or more of your bank accounts. Any money inside the account would then be redirected to the government to help reduce your tax liability.

  1. Non-filing penalties

Even if you don’t owe any taxes, you still need to file your taxes each year. Failing to file federal or state income tax return can lead to significant financial penalties and if you don’t file for three or more years, you could risk facing criminal tax evasion charges.

  1. Revocation of professional licenses

Depending on the state, failing to pay your taxes can lead to the revocation of professional licenses. This means that any license that was required for your job, such as a medical, real estate, CPA, contractor, or other license, will be revoked. This could result in the loss of your job, in addition to the financial penalties for not paying your taxes.

Understanding Your Tax Obligations  

The potential penalties for not paying taxes can be severe, so it’s important to understand your tax obligations and take action as soon as possible. This starts with knowing the tax deadlines for both the federal and state governments if you are required to pay taxes in both, which you can verify with the IRS and applicable state tax office. Additionally, it’s important to obtain the proper tax forms and fill them out correctly. If you’re having difficulty understanding and completing your tax forms, there are online resources available or you can hire a competent tax preparer to help you through the process.

What to Do if You Can’t Pay Your Taxes  

If you discover you’re unable to pay your taxes in full, there are still options available. It’s important to contact the IRS or state tax authority to alert them of your situation and explain what alternatives you are able to accept. There are a variety of payment plans and options that can potentially be offered to help you manage your taxes.

Here are a few of the IRS payment options available to taxpayers unable to pay taxes immediately:

  1. Installment Agreements

An Installment Agreement is a payment plan where you agree to make monthly payments in order to pay off your tax liability. The amount and date of payment are suggested by you and agreed upon by the IRS.

  1. Offer in Compromise

An Offer in Compromise is a written offer to settle a tax debt. With an Offer in Compromise, you can agree to pay a lesser amount than you actually owe if the IRS believes it is likely they may not collect the full amount due.

  1. Temporary Delay in Payment

If you’re facing a temporary financial hardship, the IRS may grant you a Temporary Delay in Payment. This would mean that you could delay payment of your taxes for up to three years, so long as you continue to file your tax returns and make payment arrangements on time.

  1. Partial Payment Installment Agreement

This option is only available if you owe $25,000 or less in taxes. You can choose to make regular monthly payments until the VAT is satisfied.

Failing to pay your taxes comes with significant consequences that could potentially lead to large financial losses, loss of property and professional license or even criminal charges. It’s paramount to understand your tax obligations and if you cannot pay your taxes immediately make sure to contact the IRS or state tax authority to take advantage of any payment options available. The best way to avoid penalties is to pay your taxes on time and in full, or set up an agreement to pay them back over time.