What Actually Happens If You Don’t Pay Your Taxes On Time
The idea of having the IRS knocking at your door, your garnishing your wages is kind of terrifying. But what happens if you don’t pay taxes on time? Will you simply just get hit with a penalty or late fee? Or will the IRS do something far worse happen?
If you fail to file an extension or you fail to commit to a payment plan, there will be repercussions of not paying your taxes. Today we want to discuss what those are and how you can avoid them.
What Happens If You Don’t Pay Taxes On Time?
Penalty Fees and Interest
In the short term, if you don’t file an extension or pay what is owed on your tax filing, you will be hit with a late fee of 0.5% of the amount you owe. The penalty will also continue to accrue until the amount owed reaches 25% percent of the debt owed.
On top of the penalty, you will also pay 3% interest to the IRS.
That’s Not All… The IRS Can Issue Levies and Liens
After enough time passes, the IRS can issue a levy and garnish your wages right from your checking account. The withdrawal will sit on hold with your bank for several days. It will usually come through as “Legal Order Fees LTS” and there could be a hefty fee ($100+) issued by your bank for the inconvenience as well.
If you owe over $10,000, the IRS could put a federal tax lien on your house. You really want to avoid a federal tax lien, because it will appear on your credit report and will remain there for seven years, even after the debt is paid. But don’t get too worried, the IRS usually only puts a lien on a house if the amount owed is greater than $10,000.
What Else Can Happen?
Passport Revoked
If you have a lot of back taxes owed to the IRS, the State Department can revoke your passport. This generally applies only to those with $50,000 in back taxes.
Can You Go To Jail For Not Paying Your Taxes?
Generally speaking, you probably won’t go to jail if you don’t pay your taxes. But in the event the IRS determine that you didn’t pay taxes because of fraud or negligence, you could be hit with serious charges and even prison time.
What Happens If The IRS Owes You Money?
If failure to file taxes is your problem, you could eventually forfeit all the tax refunds owed to you by the IRS. The IRS will not give you your refund without filing your taxes and if you fail to file within three years of the return due date, you will forfeit any cash the IRS owes you.
Final Thoughts
Pay your taxes. There are a ton of services that make it extremely easy. And most of them cost almost nothing to use. It’s far better than any of the circumstances mentioned above.