What Will Really Happen if You Don't Pay Your Federal Income Taxes?

Not filing or paying your federal income taxes is not just ignoring a bill. It triggers penalties, interest charges, and IRS collection actions. Even if you cannot pay in full, the worst thing you can do is nothing.

Penalties Add Up Quickly

The IRS charges a failure-to-file penalty of 5% of your unpaid tax for each month your return is late, up to 25%. There is also a failure-to-pay penalty, generally 0.5% per month, capped at 25%. If you both fail to file and fail to pay, the combined penalty can reach 5% each month.

Interest Compounds Daily

Interest accrues on unpaid taxes and is adjusted quarterly. It compounds daily, so the longer you wait, the faster the balance grows.

Notices and Demands for Payment

You will first receive a bill, commonly a CP14 notice. If you ignore it, additional notices follow such as CP501, CP503, and CP504, and then a Notice of Intent to Levy if there is still no response.

Liens, Levies, and Garnishments

The IRS can file a federal tax lien that attaches to your property, garnish wages, levy bank accounts, or seize assets. These tools make the IRS a very aggressive creditor.

Passport Restrictions

If your debt is certified as seriously delinquent above the IRS threshold, the State Department can deny a new passport or revoke an existing passport.

What About Jail

Jail is rare and typically reserved for willful evasion or fraud, not for being unable to pay. The goal is to collect, not to punish with prison.

Your Options If You Cannot Pay

• Installment agreement for monthly payments.
• Offer in Compromise to settle for less if you qualify.
• Currently Not Collectible status if you cannot pay now.

Do not ignore IRS letters. File your return and contact the IRS about payment options. Acting quickly reduces penalties and interest.