What Will Really Happen if You Don't Pay or Forget About Your Federal Income Taxes in 2021?
Not paying your federal income taxes can mean tax liens, heavy interest charges and other penalties, but it might not stop there
The thought crosses our minds every year around tax time and again when we start writing that check to the federal government. What would happen if I didn't pay my federal income taxes? We never really find out, though, since we always end up paying them. But what would really happen if we didn't pay up to the federal government? What are the potential consequences if we don't pay or forget to pay?
You'll probably pay a penalty to the IRS.
The moment you don't pay your federal income taxes on time or in full by the due date, the Internal Revenue Service (IRS) will charge you a penalty of 0.5 percent of the amount owed. The penalty will accrue until the penalty amount reaches the maximum of 25 percent of the debt owed. So if you can't pay right away, at least file your return on time anyway or file for an extension.
You'll pay interest to the IRS.
In addition to IRS penalties, you'll also pay interest on any amounts you owe. The interest rate is 3% for individuals for the first two quarters of 2021 and is always subject to change.
You'll get a hefty bill from the IRS.
If you don't file a return or make some serious mistakes, the government will do the math and send you a bill. This isn't a great way to pay because the IRS math will always have you paying more than if you filed yourself. You won't get a tax credit for your deductions since the IRS doesn't have access to all of your financial records.
You'll spend a lot of time cleaning up the mess.
Even if not paying your taxes is just a one-time lapse in judgment, you'll likely spend a lot of time working with the IRS and with tax professionals to sort the situation than if you had just paid the taxes or filed for an extension.
You could forfeit your tax refund.
Presuming that the reason you aren't paying taxes is because you aren't filing them, you might actually be owed money. So failing to do your taxes could mean you are forfeiting a refund instead of stiffing the government. And don't count on the IRS to let you know if you're due a refund. If you don't bother to file, they won't bother to let you know that you're owed.
The IRS may put a lien on your house.
This can usually happen if you get a bill and don't pay it or if you don't prove to the IRS that it's wrong and you don't actually owe any taxes. The IRS can put a lien on your property and home. But don't worry. It will usually only happen when you owe $10,000 or more and haven't worked out a plan with the IRS to pay it. If you do have a federal tax lien placed on your property, any proceeds from its sale will be used to pay that debt. The federal tax lien will appear on your credit report and will remain there for seven years, even after the debt is paid.
You can lose your passport if you have a lot of back taxes.
If you owe the IRS $50,000 or more in back taxes, the State Department can revoke your passport or refuse to issue one.
The IRS can issue a levy.
This means that the IRS can take your property, garnish your wages, or take the amount you owe straight from your checking account. You could even lose future Social Security payments. But before the IRS issues a levy you will receive a letter warning you that you are in default. It will give you a right to a hearing and explain that it will take your property if you do nothing.
You may have to pay larger penalties or go to prison in the case of negligence or tax fraud.
Should the IRS determine that you didn't pay back taxes because of negligence or fraud, your penalties can soar to as much as 75 percent. You can even be charged with felonies, which could mean prison time.
You might declare bankruptcy.
You might get into such serious trouble that you'll have to declare bankruptcy. But even if you declare bankruptcy, there's a good chance your tax debt can't be discharged and will instead be suspended until the bankruptcy has been resolved.