What happens if you don’t pay your Taxes?

What Happens If You Don’t Pay Your Taxes?

Everybody knows it’s bad news to tangle with the IRS, but what happens if you owe them money and don’t pay? They’re not going to show up at your door ready to haul you and your possessions away but they can make life pretty difficult for you if you owe them. Charges can pile up, turning your initial $200 sum into a mountain of penalties and interest. And the worst-case scenario is that non-payment of taxes could land you in jail.

Failing to File Your Taxes with the IRS

First off, there are different penalties for failing to file vs. not paying. If you don’t file your taxes, you’ll usually get smacked with a penalty that’s 5% of your balance, and it will grow each month until it reaches a maximum of 25%.

A Raging Snowball of Late Penalties and Fees

If you file and end up owing and not paying, penalties will accrue fast and quickly outpace the initial amount. In addition to these fees, there might be late fees when you do pay. Even a small balance can grow to astronomical proportions, so there’s no benefit at all to let it get out of hand. The IRS will get it one way or another!

The IRS Can Take Your Stuff

In addition to the penalties, the IRS can seize your property and possessions to get the money due to them. The IRS can issue a lien or a levy. A lien is an official claim to your current assets such as house, car or banking accounts, and future assets such as your paycheck. A levy means they actually take it. The lien just lays claim. It means your stuff officially belongs to the IRS but they’re not taking it. This reduces your assets and damages your creditworthiness. With a levy, they grab it or take a chunk out of your paycheck until they get what’s due them. In either case, the IRS will first notify you, giving you a chance to settle up with them or appeal before your credit rating is damaged or property seized. A debt to the IRS will appear on your credit score just like any other outstanding debt and be very damaging to your credit.

Jail Time for Failure to Pay?

Keep in mind that knowingly not paying taxes is the federal crime of tax fraud. It’s rare that the IRS goes after someone for this. They usually only pursue high-profile cases or cases where they’re likely to get a great deal of money. Going after someone with a $200 debt isn’t a great deal, but it could still happen. The IRS would rather offer alternatives to get you paid up.

How to Get Your IRS Debt Taken Care of

The ways of the IRS are somewhat mysterious so none of the above is a guarantee. They might pursue jail time for a small debt or give you a lenient deal with no lien or levy for a big some. Furthermore, states may deal with their taxes differently. They play by their own rules. The best thing you can do is file accurately on time and take care of it as soon as possible if you have debts. You can file for extensions if you’re unable to take care of taxes now and negotiate an Offer In Compromise if you owe money to pay less than the total amount. Skilled tax professionals can help you get it taken care of so that IRS is off your back.