No one likes to prepare or pay taxes each year. It’s money that you need to cover your bills and finance your lifestyle.
Believe it or not, more than 14 million American taxpayers owed the IRS money last year. If you’re one of them, you’re likely wondering what the IRS will do if you don’t pay taxes in the future. There are rumors and potential policies brewing that will strengthen the IRS and upcoming audits soon as well to keep in mind.
Unfortunately, failing to pay the taxes you owe can get you in serious trouble with the government. Here are a few things you can expect to happen if you fail to pay taxes on time.
You’ll Face a Fine
The IRS expects you to pay your taxes in full by April 15th or the current year’s tax deadline. If you don’t, they’ll notice and you’ll end up having to pay a penalty or fine.
The amount of the fine varies based on how much you owe the IRS and how long you’ve gone without paying taxes. The more you owe and the more you’ve failed to pay taxes in the past, the higher the fine will be.
If you think you can get out of paying that fine or dodge the IRS, you’re out of luck. They will keep reaching out to get you to pay what you owe.
You’ll Owe Interest on What You Didn’t Pay
Unfortunately, the late payment penalty is only one fee you’ll owe the IRS. They’ll also charge you interest on the taxes you owe.
The longer you carry that tax debt, the more interest will build up and the higher the interest rate will get. If you’re not careful, you could end up adding thousands of dollars to your total tax liability.
The sooner you can pay your taxes, the less interest you’ll owe, and the easier it will be to settle your debt.
The IRS Will Keep Pushing for Payment
The IRS doesn’t let tax debt slide. They will keep pushing to get you to repay them as quickly as possible.
If you’re like most people that owe late or back taxes, paying that full amount will put too much strain on your finances. The best thing you can do is to let the IRS know what your situation is like.
They may be willing to create a payment plan or accept an offer in compromise to settle your debt with a lump sum. It's important to learn how the process works and what you need to do to initiate this type of request.
You’ll Lose Access to Social Security Benefits
Failure to pay taxes doesn’t just mean the IRS will keep contacting you. It means they can take action and find other ways to settle the debt. Depending on the situation and how much you owe, the IRS may take your Social Security benefits until your debt gets repaid.
When this happens, you won’t be eligible to receive payouts when you retire until your tax debt is fully repaid. This can make it difficult for you to retire on time without forcing you to stretch your budget or make serious changes to your lifestyle.
You Won’t Receive a Tax Refund
When you pay your taxes and file on time, you’re entitled to a tax refund if the amount you paid exceeded what you owed. However, if you don’t file your taxes, you won’t qualify for a refund until your outstanding debt gets settled in full.
This is the case even if you filed taxes for the current year and expect a refund. As long as you have even a small amount of money that you owe to the IRS, you won’t receive the refund you’re due.
That said, once you settle your debt, the IRS may be willing to give you the refund that you’re owed minus any fees or settlements for your debt.
Your Credit Score Will Drop
Believe it or not, the IRS can act as a creditor. This means that when you owe them money, they can let the credit bureaus know that you’re in debt.
The more debt you have, regardless of type, the lower your credit score will go.
If you’re worried about keeping your credit score as high as possible, the best thing you can do is pay your taxes on time. If you can’t or don’t have the money upfront, discuss your options with the IRS as soon as possible.
The sooner you start trying to work things out, the better off your credit score will be.
You Risk Losing Your Personal Property
The IRS can do more than claim your tax refund to settle your debt. They can also place a lien on your property and seize that property to repay what you owe.
Your house, car, business, and any other personal property is up for grabs. If the IRS deems your debt severe enough that selling property is the only way to settle it, they can and will do so.
That said, if the value of your property is higher than what you owe and they get more than enough to settle your debt, the IRS may be able to give you a refund.
When You Don’t Pay Taxes, You Pay the Price
When you don’t pay taxes, it’s easy to think you’ll be able to get away with it. After all, the IRS has millions of tax returns to process each year.
Unfortunately, getting away with ignoring your taxes isn’t possible. The IRS will find out and they will pursue you for the money you owe them. If you fail to pay taxes or forget to file your taxes in the first place, you’ll likely experience a few of these problems.
The best thing you can do is stay on top of your tax filing efforts each year. If you know that money is tight, contact the IRS and explain your situation or speak with an attorney to represent your case.
Filing your taxes on time is just one aspect of managing your finances. When you don't pay taxes, it will bite you back later. Check out our latest posts for more tips to help you improve your finances and avoid getting into debt in the long run.
