What Could Happen If You Don’t Pay Your Taxes

Taxes are due every year and,if you don’t file and pay your taxes, you could face a wide variety of consequences. The consequences are harsh and can have an influence on your future in a negative way.

Everyone’s tax situation is different, but here are some of the things that might happen if you don’t pay your taxes:

Pay a penalty fee

There are two kinds of “not doing” your taxes (failing to file and failing to pay). If you fail to file, you get hit with a penalty of 5% of the tax owed, up to five months out, with a minimum penalty of $135, or as much as 100% of the tax owed, whichever is less.

Pay interest

The IRS can’t waive interest. They want the time value of the money you owe them. If you fail to pay, you may be paying a penalty plus interest, which is usually determined by thefederal short-term rate(anywhere from 1%-4%), plus 3%, for a total of 4%-6%.

Get notices from the IRS

If you don’t file or don’t pay, you could receive notices from the IRS. The IRS gives you multiple opportunities to get it right. They have to send you a notice before taking any action, and usually they need a response in 30-60 days. But many people in this situation know it’s coming, so they panic when they get their notice and shove it in a drawer to deal with when they have the money.

Whether you have the money or not, if you don’t reach out to the IRS upon receiving a notice, they could start taking action.

Give up your Social Security

Through what’s called the Federal Payment Levy Program, the IRS has the ability to attack certain assets after going through the appropriate notification process. While they can’t inhibit your ability to earn money, take your work tools, or appropriate certain benefits like those paid to your children. Social Security is one thing they can seize.

Forfeit your refund

If you owe the IRS money, the agency is not going to hand over any refunds until you pay. For example, if you didn’t file taxes in 2012 and the IRS is after you, but you did file for 2013 and are due a refund, you may never see that money. The IRS could simply hold onto it.

Receive a federal tax lien

A lien is a claim the IRS makes to your property. This claim, however, isn’t another notice you can shove in a drawer. According toIRS Publication 594, a lien is a public declaration of the agency’s claim to your property in relation to your other creditors. Not only may it be filed to employers, landlords, and creditors, but the lien can…

Have your property seized

A lien is a claim to your property; a levy is the actual taking of it.IRS Publication 594 makes it clear that in some cases, the agency can appropriate your house or car, not to mention your income or bank account.

They might restrain themselves if it’s agreed that you’re suffering “economic hardship,” which means their seizure would hinder your ability to meet “basic, reasonable living expenses.” Plus, the publication reads, “If there’s money left over from the sale (of your assets) after paying off your tax debt, we’ll tell you how to get a refund.” Make of that what you will.

Lose ground on your credit report

An unpaid debt to the IRS is just like an unpaid debt to anyone else, and it will appear on your credit report. Your credit report reflects your tax liens as much as any other outstanding debt. We won’t even pretend that it could be considered “good debt.”

Receive a summons

If the IRS is having trouble sorting out the taxes you owe, you could get a summons — that’s a legal requirement to appear — to meet with an IRS officer, and bring appropriate records, documents, and possibly even testify.

It won’t necessarily be you who is asked to meet with the agency: A third party with information relevant to your case, such as a record keeper from a financial institution, could be summoned instead. If the IRS is simply gathering info, you’ll be informed of the third-party summons, but if it’s in reference to money it’s already clear you owe, you might not even find out.

Deal with the IRS for a decade

Did we mention that the government has the right to pursue unpaid taxes for 10 years? While there are certain appeals and exceptions for individual cases, if you’ve been a negligent taxpayer (or rather, non-taxpayer) you can look forward to a long and close relationship with the IRS.

Declare bankruptcy

People who might declare bankruptcy are generally those who couldn’t pay their taxes because they couldn’t afford to pay their mortgage or expenses and get caught in a bit of a bind. Usually it’s people who are caught for three or four years not filing, spending the money they didn’t pay the IRS on things to try and stay above water. Bankruptcy may seem like the only way out but it also comes with harsh consequences.

Remember that bankruptcy isn’t magic: While in certain cases, a tax debt can be discharged, if it has turned into a tax lien, it might not be erased. Instead, the IRS will generally suspend the debt and seek to collect it after bankruptcy.

Serve jail time

While jail is unusual for most well-meaning citizens, it is a possibility. If the government deems that you’ve willfully failed to file or filed fraudulent returns, they could see it as an attempt to defraud the government. In cases where jail time becomes an issue, you typically see two things: a lot of income being hidden from the IRS, and a pattern or some evidence of wrongdoing. Unless you’re a dishonest high roller, it’s unlikely that the IRS will pursue a jail sentence.

It’s not too late

If you haven’t filed or paid your taxes, the best thing to do is to take action immediately. There are a few options that you could do if you are struggling to pay your tax debt. Facing the IRS can be intimidating and confusing but you don’t have to go through it alone. There are some companies that specialize in relieving tax debt. For example, one of the top rated companies is Tax Rise. Their tax relief experts can walk you through the process and negotiate with the IRS directly to take the burden off of your shoulders. For more information, check out their website at taxrise.com.