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What Happens If You Don’t Pay Your Taxes

6 February 2019 No Comment

For most people, filing their taxes can be a headache. After all, there are very few people who actually look forward to paying their taxes. Because of that, there are inevitably people who think about either delaying filing their taxes or just skipping it completely some years. That’s not something you should consider as some different things could happen if you fail to pay your taxes on time. This is true for people who may not be able to afford to pay their taxes. You should at least file your taxes and you may be able to work out an agreement with the IRS.

Pay A Penalty

This is the most obvious thing that could happen; however, it’s split into two different penalties. The first of these is a failure to file; this only 5% of the tax owed, up to five months after you were supposed to file. It normally equates to at least $135. Alternatively, it could be a penalty of 100% of the tax owed, whichever is the least. The second penalty is for failure to pay. If you file but don’t pay, then you could be liable for either of the above plus interest. This will normally end up being at a rate of between 4% and 6% (the federal short-term rate plus 3%). There may also be an underpayment penalty if you don’t pay your taxes at the full applicable rate.

Forfeit Your Refund & Social Security

Forfeiting your tax refund is a bit obvious. Let’s say, for example, that you don’t file your taxes this year, but do next year. The IRS will notice this and will hold on to next years tax refund until you’ve filed and paid your previous years taxes, should they be applicable. Obviously, the likes of not living or working in the United States for the applicable tax year may exempt you from this. The IRS can seize certain assets to then recoup the taxes that you should have paid. While this ability is severely limited, they can go after your Social Security. This follows a certain notification process so you’ll have a chance to pay any liable taxes prior to your Social Security being seized.

Get A Federal Tax Lien

A Federal Tax Lien may sound sophisticated, but it’s actually relatively simple. A lien is when the IRS publicly puts forward a claim to your property ahead of any other creditors that you may have. Through this lien, they’ll be able to claw back any back-taxes that you may owe. This lien can be sent out to the likes of your landlord and employers as well as any other creditors, such as a bank or credit union. Because of that, it may also have a significant effect on your credit rating. This is because it’s seen as an unpaid debt and is treated just like any other unpaid debt; because of that, it will turn up on your credit report just like any other.

Have Property Seized

A Federal Tax Lien can do a whole lot more than just affect your credit rating. In a vast majority of cases, the IRS will be legally allowed to appropriate some of your assets to pay off your tax debt. In the majority of cases, the IRS normally targets assets such as vehicles and houses. However, they’ve also been known to seize bank accounts and income to pay off your tax debts. Having said that, there are a few different circumstances that may affect the IRS’ choice to seize your property. In some cases, the IRS will rule that you’re suffering from “economic hardship.”

In this case, they would rule that seizing your property would have an overly negative impact on your ability to meet basic living standards. Should that be the case, then the IRS will more than likely make some form of payment deal with you. Should the IRS seize any of your assets and sell them for more than what your total tax debt was, then they’ll contact you with the appropriate way to get a refund of the difference.

With all of that in mind, you should never neglect to pay your taxes on time. If you’ve missed the filing or payment deadline, then there are still options available. You should contact the IRS as soon as possible to come to an agreement. This is because it may look better on you if you’re actively working to resolve the situation.

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