Understanding the Impact of Failing to Pay Federal Taxes
Many wonder what happens when they fail to pay their federal taxes by the deadline. In reality, the immediate response from the IRS might not be immediate, but the long-term consequences can be severe.
What Happens When Taxes Are Not Paid?
When you make tax payments, these payments are sent to the US Treasury, not the IRS. However, your payments are eventually processed through the IRS. At first, no immediate action is taken by the IRS. They do not have the resources to monitor every individual who fails to pay their taxes right away. This is where many tax evaders fall into a dangerous trap.
Thinking that you can escape responsibility by not paying taxes, some individuals may ignore their tax obligations for years. However, this is a delusion. The IRS has methods to track down these evaders. It is only a matter of time before you are audited, typically up to 7 years in retrospect. Once they identify a non-payment, the consequences can be dire. You will be forced to pay the full amount owed, plus additional fines, penalties, and legal fees.
Penalties and Interest on Unpaid Taxes
Finance strategists warn that if you fail to file your taxes, you can face penalties and interest on your unpaid tax bill. Over time, these can significantly increase your overall tax liability. If the failure to pay is due to willful neglect or tax evasion, you could face legal repercussions, including fines and even imprisonment in some cases.
IRS Collection Methods: Cooperation and Non-Cooperation
The IRS typically attempts to work out a payment plan with you. This means spreading out the payments over a period of time. However, if you choose not to cooperate, the IRS will take further steps to collect the tax owed. If you have been employed, the IRS may garnish a portion of each paycheck until the debt is fully paid. This is an action you have virtually no control over.
Additionally, the IRS can seize funds from your bank accounts up to the amount owed. The best course of action is to contact the IRS and discuss your options. You can set up an installment agreement or file for financial hardship. In both cases, while the tax bill is still due, payment will be spread out or delayed, providing some relief.
In summary, failing to pay your federal taxes can lead to significant financial burdens and legal issues. It is crucial to address any tax obligations promptly to avoid the stringent measures the IRS will take to collect the debt.