Evergreen Tax Law

What Happens If I Don’t File/Pay My Taxes?

 

     Many people put off filing and/or paying their taxes, but the consequences for doing this can be severe. When you fail to file and/or pay your taxes, the IRS adds penalties and interest to the amount of taxes you owe. Furthermore, the IRS treats each year separately, so these penalties and interest are applied to every single year individually for every year you are behind on filing your return or paying your taxes.

 

     For any year in which you have not filed a tax return and have not paid any taxes toward, the IRS can use all three of the following options to increase the total amount of your tax bill:

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• The Failure to File Penalty,

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• The Failure to Pay Penalty, and

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• The Addition of Interest.

 

 

The Failure to File Penalty

 

     When you fail to file your tax return for a given year, the IRS may apply a penalty called the Failure to File Penalty. This penalty starts out at 5% of the unpaid taxes, however, the IRS adds an extra 5% each month you are late. The IRS will stop adding interest when the penalty reaches 25% (after you are 5 months late).

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The Failure to Pay Penalty

 

     If you do not file your taxes, or you file your taxes but do not pay all or some of the taxes you owe by the filing deadline, the IRS may apply the Failure to Pay Penalty. This penalty is 0.5% of the unpaid taxes. The IRS will increase this tax by 0.5% each month, until it reaches 25%.

 

 

When Both Penalties Are Applied

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     For any year in which you neither file your return, nor pay all your taxes, the IRS will use both penalties at the same time. However, the maximum amount the IRS will charge you for each month is 5% per month (4.5% for Failure to File and 0.5% for Failure to Pay). This means that after a long enough time, your total penalties could add another 47.5% to your taxes (in other words, if you owed $5,000 in taxes but did not file and did not pay, the penalties could add an additional $2,375 to your tax bill for that year). This does NOT include interest.

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The IRS Also Adds Interest On Unpaid Taxes

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     The IRS also charges interest on any unpaid taxes, on top of the penalties it may add.

 

     Generally, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3%. Interest compounds daily.

 

     Interest can also be charged to the amount owed due to penalties!

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How Will The IRS Try to Collect This Money?

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     To collect on unpaid taxes, penalties or interest, the IRS would likely resort to placing liens, as well as levying the bank accounts and possibly other assets, of the individual or business that owes the taxes. If you or your business are dealing with tax issues, it is extremely important to act quickly and speak with a tax law professional in order to get ahead of the situation as soon as possible.