The US Government expects you to duly pay your taxes every year to the IRS, within the due date. But due to lack of funds or other reasons, many people fail to pay taxes.
If you fail to pay your taxes within the stipulated time, then you will end up paying more. The more you delay, the mroe your tax debt increases. Every month, you will have to pay a penalty of 0.5% of your total tax debt. The calculation will start right after the due date. And this rate will also increase with each passing month. However, it can’t exceed 25 percent. If you can show a valid reason to the IRS regarding why you failed to pay, then you may be exempted from paying the late charges.
If you are unable to pay your taxes on time, then it is your responsibility to contact the IRS and make the proper arrangements. If you owe them a huge money and don’t do anything about your situation, then the IRS will have certain powers, like:
- They can file a Federal Tax Lien. The IRS normally sends a notice informing you of the total taxes that you owe. Even after ten days from receiving the notice, if you don’t pay them, then as per this lien, they will have a claim against all the property which you own and acquire later on.
- They can also file a notice of Levy. It only happens in serious cases. As per this notice, the IRS can seize your property and your bank accounts, and then use all the funds to pay off your tax liability.
Prison Time: If you have a record of not paying taxes, then the IRS may decide to launch a criminal investigation against you. If you are found guilty, then you may end up facing prison time as well. However, in case of a first time offense, such a scenario is extremely unlikely to happen. The IRS will generally give you some time to clear off your dues, including the tax penalties. You can also consult a tax attorney to understand the rights you have.
Credit Score: If you have been issued a credit lien, then it will show up in your credit records. Your credit score will take a big hit. It will be difficult for you to get a loan for your house or car.