What Happens If You Don’t Pay The IRS?

The Consequences of Not Paying Your Taxes

Finding out that you owe taxes is never easy, especially if it’s more than you can afford to pay. When this happens, your first instinct may be to avoid filing taxes at all. That would be a huge mistake and only make things worse. Even if you can’t pay, send in your return with whatever you can afford to give, even if that’s zero dollars. This will save you some money down the road.

Once the tax filing deadline passes, however, the clock starts ticking, and the IRS will begin coming after you for the money.

Immediate Consequences

After the filing deadline expires, the IRS will impose penalties starting on day one.

• Failure-to-Pay Penalty: Even if you request a filing extension, you do not get additional time to pay. The penalty is 0.5% of the unpaid tax for each month (or part of a month) you don’t pay. The total amount, however, will never exceed 25% of what you owe.
• Failure-to-File Penalty: Remember when we said filing would save you money? If you fail to file, the IRS will assess a 5% penalty on the amount due. That’s a substantial amount compared to the 0.5% for failing to pay. If you owe both, the filing penalty is reduced to 4.5%, which can still add up quickly over time.

For returns due after 12/31/2025, anything more than 60 days late results in a minimum penalty of $525 or 100% of the amount you owe, whichever is less. So, if you are faced with a tax bill you can’t pay, at the bare minimum, file your return on time to avoid this fee!

You’re on Notice

Are you wondering how you’ll know about the penalty fees accruing? That’s simple. After a few weeks of not paying your taxes, the IRS will start sending you notices. It typically begins with a Balance Due Notice (CP14), followed by balance reminders (CP501 and CP503). If you continue to ignore the notices, you’ll eventually receive a Notice of Intent to Levy (CP90 or CP504). That’s when things get very serious, very quickly.

Garnishment, Levies, and Liens – Oh, My!

Once you receive notice that the IRS intends to levy your assets, you’ll need to move quickly, or you’ll be facing some dire consequences, including:

• Wage Garnishment. The IRS can take a large portion of your wages to help paydown any taxes owed, and it doesn’t need permission from a court to do it. It simply sends Form 668-W to your employer once the Final Notice of Intent Levy is sent and the 30-day response period expires.
• Tax Liens. If you owe more than $10,000, a lien will automatically be placed on your property 10 days after the IRS sends the initial demand for payment. The IRS may also file a Notice of Federal Tax Lien (NFTL) to let other creditors know they have first dibs on your assets. This can impact your ability to rent an apartment, get new credit, or sell your property.
• Tax Levies. Once the IRS sends the Notice of Intent to Levy, you have 30 days to pay off your debt or make payment arrangements. Failure to do so will result in the IRS seizing your tax refunds (local/state/federal) and your bank accounts. It can also take your property, such as vehicles and real estate. Even your retirement accounts and Social Security income are not safe.

Don’t ignore these collection notices. Your tax debt will only continue to grow, and you may find yourself with empty bank accounts and a much smaller paycheck.

Could Jail Time Be in Your Future?

In some rare instances, where a taxpayer has willfully avoided paying their taxes, the IRS may pursue tax evasion charges. This is a serious felony that can result in fines of up to $250,000 and even jail time (up to 5 years). Even after you serve time, you’ll still need to pay your tax balance, including all penalties and interest. Civil penalties for tax evasion can be as high as 75% of your unpaid tax balance. If the IRS charges you with tax evasion, seek legal counsel immediately!

Can’t Pay? Follow These Tips

Now that you realize the serious consequences of not paying your taxes, let’s find a solution to your problem.

IRS Payment Plan

For most taxpayers, the easiest way to avoid wage garnishment and asset seizure is to set up a payment plan with the IRS. You can generally do this online, over the phone, or by mail (Form 9465). If it seems a bit overwhelming, you can also enlist the services of a tax professional to help you get into an affordable payment arrangement. This allows you to pay off your debt over several months or years.

Other Relief Options

If a payment plan doesn’t work for your situation, you may have the following relief options:

• Offer in Compromise (OIC). In some instances, you may be able to reduce or eliminate your tax debt through an OIC. The process is long (up to 24 months), and many taxpayers do not qualify for this type of relief. The IRS will consider your ability to pay and whether there’s any expectation of it recovering the full amount before the statute of limitations expires. While your application is being processed, collection actions are suspended. If accepted, your account will be considered paid in full, and all collections will cease. Should it be declined, collections will resume.
• Currently Not Collectible. For those facing extreme financial hardship, it’s possible to temporarily suspend IRS collections by requesting Currently Not Collectible (CNC) status. It’s important to note that your account will be reviewed frequently and your balance will continue to grow. It will only be cleared if you remain in CNC status until the statute of limitations expires.

Final Thoughts

If you’re facing an unexpected tax bill this year, don’t ignore it. First and foremost, always file your return on time or request an extension to avoid the failure-to-file penalty. Next, speak to the IRS or a tax professional to explore your repayment options. Taking action early can help you avoid wage garnishment and other collection actions.