They say that the only constants in life are death and taxes, and it’s funny because it’s true if you owe the IRS. If you don’t pay your taxes, the IRS will attempt to collect them. So, what are the consequences if you don’t pay? You could face financial consequences as well as federal tax liens or levies.
Penalties and Interest
If you don’t pay your taxes by the due date, you’ll face penalties and interest, which begin to accrue immediately after May 17th, 2021, this year. While you can request an extension of time to file your taxes, this does not extend your time to pay your taxes. Your taxes are due on May 17th, 2021, no matter when you file. The late payment penalty is 0.5% of the amount due each month the balance remains unpaid, up to 25%. The late interest rate is the federal short-term interest rate plus three percent. Interest accrues daily, which means your tax liability can increase rapidly.
Even if you can’t pay your taxes in full right now, you should file your taxes and pay as much as you can. If you don’t file, you could face a failure-to-file fee on top of any late payment penalties and interest. The failure-to-file penalty is typically five percent of the amount owed each month, up to 25%.
At a certain point, the IRS will issue a demand letter for your unpaid taxes. If you ignore this, the IRS may file a Notice of Federal Tax Lien to let your creditors know that the government has a legal right to your property. This lien secures the government’s interest in your property.
If the tax debt remains unpaid, the IRS may issue a levy. The IRS will send you a Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before issuing the levy against your property like your home or car, or retirement account, bank accounts, or your wages.
In extreme cases, the IRS can seek criminal charges against you for tax evasion. Deliberately avoiding paying your taxes is a crime punishable by up to five years in prison.
If you’re in over your head with tax payments or receiving notices from the IRS, and owe the IRS, you need guidance from a trusted tax professional. Contact Highland Tax Group to get started.