What to Expect If You Don't Pay Your Taxes

The IRS may not have discovered your failure to file in previous tax years. But the agency is getting better at using its resources to track down non-filers each year. That increases the chances you'll get discovered.

For those who the IRS has discovered, the IRS must take specific steps to notify you that you owe taxes and to collect them. The IRS may also impose hefty penalties on taxpayers who have not paid their tax bills and will charge interest on unpaid taxes and any penalties. The following sections will give you an overview of the IRS's actions if it discovers you haven't filed.

Filing Requirements

Not everyone has to file an income tax return. If you earn less than a specified amount — $14,600 for single taxpayers under 65 at the end of 2024 — you don't have to file a return. Because the filing threshold varies depending on your age and filing status, you should consult the IRS website to see if you must file.

If your withholdings are greater than the tax you owe, the IRS won't penalize you for not filing a return by the tax filing deadline. For most people, tax withholdings are the amount your employer must withhold from your paycheck each pay period to pay your anticipated tax obligation. It's usually a good idea to file in these situations because you are likely due a tax refund, and you can't get a refund if you don't file.

Failure to File

If you don't file a return by the due date, you will be subject to a failure-to-file penalty of 5% of what you owe each month, or part of a month, that your return is late. The total penalty amount is 25% of what you owe.

For returns over 100 days late, the minimum penalty is 100% of the unpaid tax or $485, whichever is less.

Substitute Returns

Often, when the IRS discovers that someone has not paid their taxes, it's because the person's employer or financial institution has filed a Form W-2 or Form 1099 with the agency notifying it that it paid you. When this happens, the IRS will send the person a letter asking them to file and may follow up with more notices. Should a taxpayer not file after being repeatedly asked to do so, the IRS will file a substitute return on their behalf based on the information it has. Taxpayers who don't respond after getting mailed a substitute return may be subject to more collection actions.

Failure to Pay

Any taxes on your return are due the day you file the return. Tax payments made at any time after that will be subject to a late-payment penalty and interest. Fortunately, the failure to pay penalty is much lower than the failure to file penalty: 0.5% per month, up to 25% of your unpaid tax bill.

When you fail to file and fail to pay, the failure-to-file penalty gets reduced to 4.5%, so the combined penalties are 5% per month, up to 25% of your unpaid tax.

When Does Failure to Pay Become a Crime?

Failure to pay taxes or file a return is not, in itself, a crime. In most cases, the IRS just wants you to pay what you owe and will work with you without filing criminal charges. The IRS rarely prosecutes cases where taxpayers mistakenly fail to pay their taxes. But, if you took steps to conceal income or lied on a tax return, the IRS is more likely to recommend getting charged with tax evasion or tax fraud. They are serious crimes. The Department of Justice prosecutes criminal tax cases, and the IRS only refers cases to the department.

What Happens When the IRS Suspects a Tax Crime?

Most criminal charges get filed after the agency audits your income and financial situation. An audit can come randomly after the IRS discovers irregularities on your tax return or someone else tells the agency you haven't been paying your taxes. If the audit uncovers suspected criminal nonpayment (or underpayment) of taxes, the IRS will investigate to determine whether to file criminal charges.

What Is Tax Evasion?

Lying on a return to avoid paying taxes, not filing a return, or not paying the tax owed can sometimes get treated as a criminal violation known as tax evasion. While tax evasion is often charged when the taxpayer has been involved in criminal activities that generated income, anyone who intentionally fails to pay or underpays their taxes can get charged with the crime.

Fortunately, it's not the IRS's policy to prosecute ordinary people with tax evasion for making mistakes on their returns or forgetting to pay their taxes. To prove tax evasion, the government must prove that you knew you owed taxes and intentionally took steps to avoid doing so.

What Is Tax Fraud?

Unlike tax evasion, which is always a crime, tax fraud can be criminal or civil. If you are facing charges of civil tax fraud, you may end up paying a stiff penalty, but you won't go to jail if found guilty. A conviction for criminal tax fraud can result in jail time and fines.

Limits on Collecting Unpaid Taxes

There are strict limits on how far back in time the IRS can go when collecting taxes, but those limits only apply if you have filed a tax return. The IRS can go back indefinitely for unfiled returns, but it usually only tries to collect taxes owed for the past six years. When it goes back further, it is usually because the taxpayer has committed other serious crimes.

Generally, the IRS has 10 years from the date the tax got assessed to collect, known as the collection statute expiration date (CSED). An assessment is when the IRS records your tax liability. If you have multiple assessments, each will have its own CSED.

There are also some actions that a taxpayer can take to extend the CSED. These include the time:

• IRS spends reviewing a proposed installment agreement
• The taxpayer is in bankruptcy
• IRS spends reviewing an offer in compromise (OIC) to settle a tax debt
• Between a taxpayer's request for a collection due process hearing and the IRS makes a final determination

IRS Collection Process

When the IRS finds you have unpaid taxes, it begins the collection process. The first step is sending a bill for the amount you owe. If you don't pay after getting the bill and any follow-up notices, the IRS will file a notice of federal tax lien. The tax lien notifies your other creditors that it has a claim on your property.

Should you fail to pay after the lien gets filed, the IRS may levy your assets. A tax levy is when property gets seized to meet a tax liability. Property that can get levied includes your wages, bank accounts, real estate, cars, and Social Security benefits. The IRS may also seize any federal or state tax refunds.

Paying Your Taxes

If you decide to pay the taxes you owe, the IRS offers several payment options if you can't afford a lump-sum payment. Most taxpayers can set up an installment agreement payment plan. You can make monthly payments under the installment plan directly from your bank account or by check, money order, or credit card.

You may also see if the IRS will accept a reduced amount by making an OIC. Finally, if you truly can't cover your minimum expenses while paying your tax bill. In that case, the IRS may grant you currently-not-collectible status and will stop trying to collect until your financial situation improves.

Still Have Questions? A Tax Attorney Can Help

If you have an unpaid tax bill and want to understand your options and the actions the IRS can take against you, a local tax lawyer can help. A tax attorney understands tax law and the legal protections offered to people with tax problems. A tax lawyer can also negotiate with the IRS to minimize the amount you owe, reduce penalties, and keep the agency from taking further action against you.