What happens if you don’t report taxes or pay your bill by tax day
- If you do not declare your taxes on time, the IRS usually doesn’t show up at your doorstep, but a lot of nasty things can start to happen.
- Note that if you submit a request for tax extension, it is an extension on the repository; you should always calculate and pay the taxes you owe by the usual deadline.
- If you can’t pay your taxes on time, call the IRS and make a plan. It is better to go to them than to wait for them to come to you.
- View Business Insider’s Choices For The Best Tax Software »
July 15th is now the deadline to pay and file your federal taxes; numerous states have new due dates also. Even though the deadline has been extended by 90 days, that doesn’t mean you have to postpone the task indefinitely. If you don’t do your taxes, things that could happen to you can cause more than a headache.
Julius Green, CPA, told Business Insider US about the potential consequences of letting the deadline come and go without a filing.
Admittedly, you are not guaranteed to suffer these consequences, and everyone’s tax situation is different, but here are a dozen terrible things that could happen if you don’t do your taxes.
1. Pay a penalty
There are two types of “don’t” your taxes: don’t report and don’t pay.
If you don’t file your return by July 15 of this year – or October 1, the expiry date of the extension – you are hit with a penalty of 5% of the tax due for up to five months, says Green. If the return is filed more than 60 days after the due date, it is subject to a minimum penalty equal to the lesser of 100% of the tax payable on your return or $ 435, depending on current IRS rules.
If you don’t pay, says Green, you usually have to pay a penalty, plus interest.
2. Pay interest
“Legally, the IRS cannot waive interest,” says Green. “They want the time value of the money you owe them.” If you don’t pay, you might pay a penalty more interest, which is usually determined by the federal short-term rate (1% to 4%), plus 3%, for a total of 4% to 6%.
3. Get notices from the IRS
It’s probably fair to assume that no one wants mail from the IRS. But if you don’t produce or pay, that’s exactly what could happen. “The IRS gives you lots of opportunities to get it right,” says Green. “They must send you a opinion before taking any action, and they usually need a response within 30-60 days. But a lot of people in this situation know it happens, so they freak out when they get their advice and put it in a drawer to take care of when they have the money. “
The best thing to do if you’ve neglected to report or pay, says Green, is to contact the IRS immediately.
It might seem counterintuitive, but the agency is more likely to look sympathetically on someone who admits they’re on the right track and wants to fix the problem than someone who has doubled down.
with their opinions. You may be able to negotiate a payment plan or even a reduction in the total amount owed.
“You shouldn’t panic upon receiving a notice from the IRS,” says Green. “There are remedies, but your options are more limited the longer you wait to engage.”
4. Forfeit your refund
It makes sense when you think about it. If you owe the IRS money, the agency won’t return anything until you pay. For example, if you didn’t file a tax return in 2018 and the IRS is after you, but you filed a return for 2019 and you owe refund, you may never see this money. The IRS could just hang on to it.
5. Give up your social security
“Through what’s called the Federal Payment Levy Program, the IRS has the ability to attack certain assets after going through the proper notification process,” says Green. “While they may not hinder your ability to earn money, take your working tools, or appropriate certain benefits like those paid to your children, Social Security is something they can grab hold of. “
6. Receive a federal tax lien
It sounds technical, but basically a lien is a claim the IRS makes against your current and future property, including a house, car, bank accounts, and even wages. This claim, however, is not another opinion you can put in a drawer. According to IRS Publication 594, a lien is a statement of the agency’s claim on your property that materializes after the non-payment of your first bill. It can be filed with employers, owners and creditors.
If you make an agreement with the IRS to pay your federal tax by installments, your tax lien may be withdrawn, removing it from the public record.
7. Lose ground on your credit report
An unpaid debt to the IRS is like an unpaid debt to someone else, and it will show up on your credit report. “People don’t realize that your credit report reflects your tax privileges as much as any other outstanding debt,” says Green. We will not even claim that it could be considered “good debt”.
8. Have your property seized
A lien is a claim on your property; a levy is the actual taking of it. IRS Publication 594 makes it clear that in some cases the agency may sell your house or car to pay off an unpaid tax debt.
They might hold back if it is agreed that you are suffering from “economic hardship”, meaning that their seizure would hamper your ability to meet “basic and reasonable living expenses”. Further, the publication reads: “If there is any money left over from the sale [of your assets] after paying your tax debt, we’ll tell you how to get a refund. Do what you want with it.
9. Receive a summons
If the IRS is having trouble paying the taxes you owe, you can get a subpoena – it’s a legal requirement to appear – to meet with an IRS agent and bring the appropriate records, documents and possibly be even testify.
It will not necessarily be you who will be invited to meet with the agency: a third party with information relevant to your file, such as an archivist from a financial institution, could be invited instead. If the IRS is just collecting information, you’ll be notified of a third party summons, but if it’s money, it’s already clear you owe it, you might not even find out.
10. Declare bankruptcy
Hopefully it doesn’t come to that. “The people who could declare bankruptcy are the ones who couldn’t pay their taxes because they couldn’t afford their mortgage or their expenses and got a little stuck,” says Green. “Usually these are people who are caught for three or four years without filing a return, spending the money they didn’t pay the IRS on things to try to stay out of the water.”
remember that bankruptcy is not magic: While in some cases a tax debt may be discharged, if it has turned into a tax lien, it may not be cleared. “Instead,” says Green, “the IRS will usually suspend the debt and seek to collect it after bankruptcy.”
11.serve a prison sentence
While jail is unusual for most well-meaning citizens, it is a possibility. “If the government believes that you have willfully failed to file or filed fraudulent returns, it could see it as an attempt to defraud the government,” Green said. “In cases where jail time becomes an issue, you usually see two things: a lot of income is hidden from the IRS and a pattern or evidence of wrongdoing.” Unless you are a dishonest big gambler, the IRS is unlikely to pursue jail time.
12. Dealing with the IRS for a Decade
Did we mention that the government has the right to sue unpaid taxes for 10 years? While there are certain appeals and exceptions for individual cases, if you have been a negligent taxpayer (or rather, no-taxpayer), you can expect a long and close relationship with the IRS.
Libby Kane contributed reporting to an earlier version of this article.