What Happens If I Can’t Pay My Taxes?

calculating tax return

Tax season is never too far away, especially if you’re worried that you won’t be able to pay your taxes. Not paying your taxes is illegal and has many negative consequences. Furthermore, the longer you go without paying them, the more trouble you’ll be in. Still, there’s no need to panic right away. The best thing you can do if you foresee financial difficulties leading up to April 15th is to start planning.

There are many options when dealing with the Internal Revenue Service (IRS), from extensions to tax relief services. The first thing you need to remember is that there’s no hiding from the IRS. For that reason, even if you can’t afford to pay your taxes, you should at least take the time to file them.

The Consequences of Not Paying Your Taxes


One consequence you may face is that of an IRS audit based on suspicious activity. If you thought that you could reduce your tax payment by underreporting your income or claiming an unusual number of deductions (such as charitable donations that equal the same amount as your reported salary), the IRS will likely audit you. If you fail to file your taxes, you could also see an IRS audit in your future.

An audit involves a  federal employee taking a close look at your personal financial information. The purpose of an IRS audit is to make sure that the figures you provided them with are correct. Not only is the process stressful and time-consuming, but you could end up needing to pay back taxes. You likely want to have someone on your side if you find yourself facing an audit. Many tax relief services by reputable companies, such as Victory Tax Lawyers, include audit representation.

Late Fees and Penalties

Failing to comply with IRS regulations can lead to several expenses. The longer it takes for you to cover these expenses, the more they’ll grow. If you wait too long, you’ll be faced with a financial Frankenstein that will make you miss the days when you were only worried about not being able to pay on time.

The IRS breaks down penalties into four categories:

  • Failure to file
  • Failure to pay
  • Failure to pay estimated tax
  • Dishonored checks

The first expense you’ll face for filing and paying late are upfront penalties. According to the IRS, if you fail to file your taxes by the deadline, you’ll be slapped with a “failure-to-pay” penalty. In some cases, failure to file can lead to fraud charges. You can be faced with the same kind of penalty if you file on time but fail to pay by the deadline. In this case, the penalty will be less severe than if you haven’t filed at all.

The IRS will stop charging you interest and penalties once your balance is paid off.  The IRS charges interest on underpaid balances and pays interest on overpaid balances. The exact interest rates change year-by-year, and underpaid balances are currently charged 5% of what is owed, which will be charged each month. There are ways to get your penalties waived, and this is a common service provided by tax relief companies.

Lost Or Late Reimbursements & Tax Refunds

Failure to file and/or pay your taxes on time won’t only result in added expenses. There is also the chance that you won’t be able to receive your tax refunds and reimbursements if you don’t get an IRS file extension or fail to pay on time. In most cases, your tax reimbursements and refunds will simply be delayed. Still, you don’t want to play games with the IRS. Playing with them is similar to playing with fire; you are at risk of getting burnt.

Extreme Cases

In extreme cases, failing to file and pay taxes can lead to arrest and criminal charges. The longer you fail to comply with the IRS and the more severe your infractions are, the more risk you face. The IRS may garnish your wages before you even see your paycheck, levy your bank account, and place a lien on your property. These are not situations that anyone wants to face.

4 Things You Can Do

This all probably sounds a bit scary. However, don’t let fear get in the way of proactively solving your current problems. The key is not to panic and take the appropriate steps to prevent this from happening.

1. Make Sure You Still File

Even if you know you can’t pay, the IRS always apprec