Not paying taxes can lead to penalties, interest, liens, wage garnishment, and criminal charges for tax evasion.
Consequences
- Failure-to-file penalty of 5 percent per month, up to 25 percent.
- Failure-to-pay penalty of 0.5 percent per month, up to 25 percent.
- Interest on unpaid tax.
- Federal tax lien on your property.
- Wage garnishment and bank levy.
- Seized refunds.
- Criminal prosecution for tax evasion (up to 5 years in prison and fines up to $250,000).
Payment options
The IRS offers payment plans (installment agreements), offers in compromise, and penalty relief. Contact the IRS before enforcement.
Statute
The IRS usually has 10 years to collect.
Advice
File even if you can’t pay, and speak with a tax professional.
Non-filers
No time limit for fraud.
Consequences
Not paying taxes in the US has escalating consequences:
- Penalties and interest: the failure to pay penalty is 0.5% of unpaid tax per month, up to 25%, and interest accrues at the federal short-term rate plus 3% (8% in 2024), compounding daily. Failure to file adds 5% a month, up to 25%.
- Collection notices from the IRS, starting with CP14 and escalating to final notices.
- Federal tax lien: a legal claim against your property, which damages credit and makes selling difficult.
- Levy: the IRS can seize money from bank accounts, garnish wages (taking a large portion of each paycheck), and seize property such as vehicles or real estate.
- Withholding of federal tax refunds, and offsets against other government payments like Social Security in some cases (up to 15%).
- Passport denial or revocation for “seriously delinquent” tax debt over $62,000 (2024).
- Criminal charges for willful tax evasion or failure to file: up to 5 years in prison and fines of up to $250,000 per count. Prosecutions focus on willful, large-scale cases.
Payment options
- Short-term payment plan: up to 180 days, no fee.
- Installment agreement: monthly payments for up to 72 months, with a setup fee of about $22 to $178.
- Offer in compromise: settle for less than the full amount if you cannot pay, with strict eligibility.
- Currently not collectible status for hardship.
- Penalty abatement for first-time offenders or reasonable cause.
Statute
The IRS generally has 10 years from the date of assessment to collect a tax debt (the Collection Statute Expiration Date). The clock can be extended by certain events such as bankruptcy or an offer in compromise.
Advice
Respond to IRS notices, file returns even if you cannot pay, and contact the IRS (800-829-1040) or a tax professional. Enrolled agents, CPAs and tax attorneys can negotiate. The Taxpayer Advocate Service offers free help.
Non-filers
If you did not file returns for past years, file as soon as possible. The IRS usually asks for six years of back returns. Avoid “tax resolution” companies that promise to settle debts for pennies on the dollar.
Penalty rates and relief options
The IRS charges a failure to file penalty of 5 percent of unpaid tax for each month, up to 25 percent, and a failure to pay penalty of 0.5 percent per month, up to 25 percent. Interest accrues on unpaid tax at the federal short term rate plus 3 percent, which was 8 percent per year in 2024. For returns more than 60 days late, a minimum penalty applies, equal to 450 USD or 100 percent of the tax owed, whichever is smaller, for returns due in 2024. The IRS can file a substitute return, garnish wages, levy bank accounts, place liens on property and in cases of willful evasion pursue criminal prosecution, with up to 5 years in prison for tax evasion. The IRS offers payment plans, with installment agreements for balances under 50,000 USD, offers in compromise and penalty abatement for first time offenders. Filing even if you cannot pay lowers penalties. Consult a tax professional or call the IRS at 800-829-1040.
Based on data from the IRS
