What happens if you just don’t pay your taxes?

Tax season can be stressful and for some, the temptation to ignore it altogether is strong. But what will happen if you don’t file your taxes or don’t pay your taxes? You may face accumulating interest for overdue taxes or penalties such as garnished wages, a lien on your property, and paying more than you originally owed. Whether it’s this year or next year, the IRS has a strict system for compliance and delaying payment will only make matters worse. Wonder how long it takes to pay off your tax liability? That depends on you.

Why Didn’t You File?

There are many reasons people don’t file their taxes. Maybe you simply forgot or made a mistake. Others might have skipped filing on purpose because they don’t have the money to pay their taxes. Regardless of the reason, not filing your return can lead to serious financial consequences like:

Penalties and Interest

The IRS charges interest for overdue taxes, calculated as the federal short-term interest rate plus 3%. For example, if the federal short-term rate is 5% the total interest on unpaid taxes would be 8%. In addition, you may face a failure-to-pay penalty of 0.5% per month, up to a maximum of 25% of the total balance owed. This means that the longer you wait the more you’ll owe.

Levies and Liens

After a certain length of time the IRS will begin collection efforts. You may receive multiple notices before facing a serious Notice of Intent to Levy. This means the IRS is preparing to seize your assets, including your wages, bank accounts, car or home.

Once your unpaid tax bill reaches $10,000 or more, the IRS might place a lien on your property. This lien signals to creditors that the government has a legal right to your assets. Unlike a levy, which allows the IRS to seize property, a lien makes it difficult for you to refinance or sell.

Other Consequences

Ignoring your tax obligations can also impact your ability to travel. If your tax debt exceeds $62,000, the State Department can revoke or refuse to renew your passport. While tax evasion and fraud can lead to jail time, simply not having the money to pay your taxes won’t result in imprisonment. However, the IRS has up to 10 years to collect unpaid taxes.

The good news? If you didn’t file your taxes but want to get caught up, the IRS offers options like payment plans to help you manage your tax burden. The key is to act quickly before the penalties and interest accumulate.

Is It Your Accountant’s Fault?

If the reason you didn’t file your taxes or didn’t pay your taxes is due to an accountant’s mistake, are they to blame? While professionals can make errors, it’s ultimately your responsibility to file your taxes on time.

However, if your accountant was grossly negligent or made serious errors, it’s time to figure out how to fire your accountant and consider hiring a more reliable professional. A more qualified accountant can fix errors moving forward, amend returns, or work with the IRS on your behalf.

What If You Can’t Afford to Pay Your Taxes?

Don’t have the money to pay your taxes? You still have options. The IRS offers installment plans that allow you to spread payments over time. However, these plans still include interest and penalties, which can add up.

Another option is an Offer in Compromise (OIC), where you can request to settle your tax debt for less than you owe. While the IRS approves only about a third of OIC requests, they will consider your income, expenses, and overall financial situation when making a decision.

The Bottom Line

Not filing or paying your taxes can lead to serious financial and legal consequences. If you didn’t file your taxes, you must act quickly to avoid penalties. However, if you don’t have the money to pay your taxes, setting up a payment plan or exploring settlement options can help you get back on track. The IRS won’t simply forget about unpaid taxes, and neither should you. The sooner you take control of your tax situation, the better your financial standing will be.