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Understanding the Consequences of Not Paying Your Taxes

piggy bank unpaid taxes Having outstanding tax debt or back taxes can lead to various tax problems, including significant tax penalties. The IRS and most states offer a variety of methods to limit collection actions and penalties to financially distressed taxpayers who owe taxes. Below are the various consequences and solutions to having debt.


The consequences of tax debt vary significantly depending on the taxpayer’s situation. One of the most significant consideration factors is whether taxes have been filed. The penalty for having unfiled tax debt is ten times greater than having debt alone. If taxes remain overdue, the IRS and most states follow a standard collection procedure for most taxpayers that often ends with liens and levies. Below are details on tax penalties and other possible collection actions that the IRS will take with debt.

Unpaid and Unfiled Tax Penalties

When taxes have not been filed by the due date, and taxes are owed, they can lead to the IRS charging some of the steepest tax penalties. The penalty the IRS charges for unfiled taxes with a balance due is the failure-to-file tax penalty. Failing to file a penalty is usually charged at 5% of the tax amount owed each month, with a maximum penalty of 25%. If the tax return is filed 60 days or more after the due date (or extended due date), the minimum penalty that is due is the lesser of $135 or 100% of the tax liability amount.

If taxes remain unfiled, the IRS and many states will file a substitute tax return on behalf of the taxpayer to assess the tax liability and penalties. In most situations, the amount assessed will be more significant with a substitute return than if the taxpayer filed themselves because deductions and credits will be limited. The higher the assessed tax liability, the greater the tax penalties.

Unpaid Tax Penalties (If a Tax Return Was Filed by Due Date)

The tax penalty for owing taxes but filing on time is significantly less than owing taxes with unfiled tax returns. The penalty for having late tax debt is called the failure-to-pay penalty, which is charged at 1/2 of 1% of the tax liability each month (or part of the month) that the taxes remain overdue. The maximum amount for this penalty is 25% of the debt.

If you filed an extension to file taxes, the failure-to-pay penalty will not be charged if 90% of the taxes owed are paid by the original due date and the remaining balance is paid by the due date of the extension.

How to Resolve Delinquent Taxes

Resolving delinquent taxes is crucial to avoid further penalties and legal consequences such as tax evasion, tax fraud, or tax collection enforcement actions. Taxpayers can seek agreements with the IRS or local tax authorities to set up payment plans or negotiate offers in compromise deals to settle their debts. It’s essential to act promptly and seek professional tax advice to navigate the complexities of tax delinquency and compliance.

Preventing Tax Delinquency

Filing tax returns on time is essential to prevent tax delinquency, even if you cannot pay the total amount owed. Keeping accurate records, budgeting for tax payments, and staying informed about tax rates and laws can help taxpayers avoid falling behind on their tax obligations. Additionally, seeking assistance from tax professionals can guide tax planning and compliance strategies.

Next Steps

Delinquent taxes can have severe financial and legal consequences, including tax penalties, liens, and levies. Understanding the consequences of not paying your taxes and taking proactive steps to resolve any tax issues is crucial for maintaining tax compliance and avoiding enforcement actions. If you face tax delinquency, seek professional advice and explore options to address your tax debt.

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