What Happens If You Owe Taxes But Can't Pay?

What Happens If You Owe Taxes But Can't Pay?

Tax season is always a stressful time, regardless of whether you're getting money back or owe taxes. But what happens if your tax bill is larger than expected and you're unable to cover it? If this scenario applies to you, don't panic - there are solutions available that won't leave you empty-handed. Read on for an in-depth look at how the IRS handles unpaid taxes and your options when it comes to making good on your debt.

Penalties For Not Paying Your Taxes on Time

The IRS is unforgiving when it comes to tax payments, as they should be. Failure to pay your taxes will result in the accrual of interest on your unpaid balance.

For any taxes unpaid as of October 1, 2022, the interest rate per year will be 6%, compounded daily.

Not only will you be charged interest, but the IRS can also hit you with two different penalties:

  • If you don't file your taxes by the deadline, a late-filing penalty may apply.
  • If you don't pay your taxes on time, you may be subject to a late-payment penalty.

If you file your taxes late, you'll be charged a 5% monthly penalty on your unpaid tax balance, up to 25% of the total bill. You'll have to pay a late fee of either $435 or 100% of the owed tax, whichever is less if you file more than 60 days after the due date.

The earlier you can file your taxes, the better. By filling in January, you have until at least April 15 to come up with a plan or pay taxes- meaning more leeway and less stress for you.

If you pay your taxes late, you will be charged a 0.5% monthly fee, up to 25% of the total amount owed.

The IRS imposes a 1% monthly penalty if you don't pay your taxes and wait to receive the Notice of Intent to Levy. However, If you file on time and establish a payment plan with the IRS before April 15th, then the monthly penalty decreases to only 0.25%.

What Happens If You Owe Taxes But Can't Pay?
What Happens If You Can't Pay Your Taxes At All?

What Happens If You Can't Pay Your Taxes At All?

If you can't pay your taxes at all, the IRS offers several options for repayment.

1. Apply For A Monthly Installment Plan

The most appealing option for those behind on their taxes but confident that they can catch up in an IRS payment agreement. After filing your tax return, apply for a payment agreement online.

To mail in your taxes, simply include Form 9465 with your payment. Doing so allows you to qualify for a monthly installment plan from the IRS, which gives you up to 72 months to pay what you owe—as long as it doesn't exceed $50,000 when combined with penalties and interest.

Hopefully, you haven't neglected to file your taxes in previous years. The IRS will only allow you to get on an installment payment agreement if you're up-to-date on filing past returns.

2. Request An Offer in Compromise

If you're struggling to come up with the full amount of taxes you owe, the IRS recommends this method. Briefly, you make a proposal to the IRS for what you can pay based on your circumstances. If they agree to it, that's the amount you'll pay altogether.

To qualify for an Offer in Compromise, you must demonstrate that:

• You can't pay your full tax debt.

• Paying it all would cause financial hardship.

• The amount offered is equal to or more than what the IRS believes can reasonably be collected.

3. Request A Temporary Delay

If you're completely unable to make your tax payments, the IRS may grant you temporary relief by approving a delay in collection action. This option is only available if:

• You can prove that paying your taxes would cause undue economic hardship.

• You've filed all of your required returns and submitted any necessary documentation.

• You're making a good-faith effort to pay your taxes when you can.

No matter what method you choose, the key is to take action as soon as possible. The longer you wait, the more it will cost you—the IRS has the right to charge interest and penalties on any unpaid taxes. If left unpaid, the amount can quickly increase and become increasingly difficult to manage. Take control of your taxes now and make sure you don't fall behind again in the future.

What Are Some Ways To Reduce Or Avoid Tax Penalties Altogether?

As taxpayers, it's important to be aware of the different methods you can use to reduce or avoid tax penalties altogether. Penalties are one of the most unpleasant experiences when it comes to filing taxes; they can cause financial strain and put a damper on any aspirations you may have for saving money. To make matters worse, some fines can even lead to criminal prosecution. These are some of the tips on how you can reduce or avoid tax penalties.

1. File Your Tax Returns On Time

The best way to avoid the late-filing penalty is to file your taxes on time, which is usually on April 15th. You can extend your deadline by filing Form 4868 before the original due date, giving you an additional six months.

2. Pay As Much As You Can

It's important to pay as much of your tax bill as you can. The IRS charges a penalty for late payment, so even if you don't have the full amount by the due date, make sure you pay what you can.

3. Incur Reasonable Penalties

The IRS also imposes a penalty when taxpayers underpay their taxes. Reasonable cause exceptions may be available, but to avoid penalties altogether, it's best to pay the full amount you owe.

4. Take Advantage of Tax Breaks

Tax breaks are one of the most effective ways to reduce or eliminate your tax bill and associated penalties. The IRS offers a variety of deductions and credits that can help lower your tax liability. Do your research on the available tax breaks to determine which ones apply to your situation.

5. Talk To A Tax Professional

If you're having difficulties with filing taxes, it's best to consult a professional for advice and guidance. They can help you navigate the different forms and rules, as well as provide specific advice that could help you reduce or avoid tax penalties. Click here to learn more.

Regardless of your situation, it's important to remember that taxes need to be taken seriously. Penalties can add up quickly and result in a major financial strain. Taking the time to understand the different methods available for reducing or eliminating these types of fines can save you money and stress in the long run.

What Are Some Ways To Reduce Or Avoid Tax Penalties Altogether?

What Are The Consequences Of Not Paying Taxes?

Not paying taxes can have serious consequences. Failure to pay your tax debt on time will result in interest and penalties being added to your account, as well as potential criminal charges if it's found that you willfully failed to file or pay. The IRS can also take a variety of collection actions, including levying your wages or bank accounts and putting liens on your property. Additionally, not paying taxes can affect your credit score and you may be unable to obtain loans or mortgages. Finally, if left unpaid for long enough, the IRS can place a federal tax lien on your assets.

It's important to understand the consequences of not paying taxes and make sure you take action as soon as possible if you find yourself in this situation. Ignoring your tax debt can result in serious financial and legal implications that could have a long-lasting impact on your future.

Will You Spend Time in Prison if You Don't Pay Your Taxes?

If you don't pay your taxes, you may not find yourself in prison right away. The IRS will first take several enforcement actions such as levying your bank account, putting liens on your property, or even seizing it all together. However, if you are deliberately trying to avoid paying taxes - by hiding income sources or lying on returns - then the severity of the crime might land you in jail. Tax fraud and evasion can have serious consequences if caught. Ideal Tax can help by helping you manage your accounts, stay up-to-date with tax laws and rules, and provide advice on how to handle delinquent taxes that might avoid escalating to the legal realm.


The Bottom Line:

Owing taxes can be a scary and stressful experience, especially if you don't have the money to pay. The good news is that there are options available to help you get through this tough time. Ideal Tax can help you come up with a resolution that works for you and your unique situation. We understand how difficult it can be to deal with the IRS, so let us help ease your burden. Give us a call today or visit our website to learn more about how we can help resolve your tax issues.