Tax Day is April 15th. If you owe the IRS and miss the tax deadline there will be consequences. We’re not just talking about the typical penalties and interest either. The repercussions get more severe the longer your debt remains unsettled. The IRS has up to 10 years to attempt to collect your debt and they have different strategies for getting their money. Here’s what can happen if you don’t pay your taxes.
Expect to receive an IRS notice in the mail
When you have a balance due, the first thing the IRS does is send you a bill explaining how much you owe including penalties and interest. If you don’t pay, you’ll be issued at least one more notice before the IRS takes further action.
You’ll accumulate penalty fees
Failing to file and pay your taxes on time will teach you an expensive lesson. You’ll face not one but two penalties for each month or part of the month it’s late. The penalty for not filing is five percent of your unpaid taxes up to a maximum of 25 percent. If your return is more than 60 days late, the minimum penalty is $210 or 100 percent of the tax owed, whichever is less. The second penalty is for failing to pay. The penalty is 0.5 percent of your unpaid taxes up to a maximum of 25 percent. Even if you can’t afford to pay, at least file before April 15th to save yourself some money. With ezTaxReturn.com you can prepare and e-file your return in just 30 minutes.
Interest will be compounded daily
As if the penalty fees weren’t costly enough, your balance will also accrue daily interest until it’s paid in full. The rate is set every three months and is the federal short-term rate plus 3 percent.
A federal tax lien will be filed against your property
When you refuse to pay your tax bill, the IRS may file a federal tax lien. This lets other creditors know that they have a right to your property which includes your house, car and financial assets. The tax lien will appear on your credit report and can make it harder for you to get approved for new credit.
Your property may be seized by the IRS
If you continue to ignore your tax debt, the IRS can levy your property. Just so we’re clear, a lien only gives the IRS the right to your property. With a levy, they can actually start taking away your belongings. Commonly, they’ll ask your employer to garnish your wages until your debt is satisfied. Alternatively, they may seize the money in your bank account. Once the levy is issued the bank will hold on to your funds for 21 days then turn it over to the IRS. This will give you time to try to resolve the issue. Although your income and bank accounts are fair game, there are certain properties the IRS can’t touch. For instance, unemployment benefits, worker’s compensation, income for court-ordered child support and certain public assistance payments.
The IRS can issue you a summons
The IRS will only play the cat and mouse game for so long. If they’re having a hard time collecting your taxes or confirming how much you owe, you may receive a summons. This legal document will force you or a third party to meet with an IRS officer to provide information, paperwork and/or testimony. The third party can be your financial institution, record keeper or anyone with firsthand knowledge of your situation.
Your passport will be in jeopardy
Billions of Americans travel for business and leisure purposes. However, you can kiss your U.S. passport goodbye if you have a seriously delinquent tax debt. Once you owe the IRS more than $52,000 including penalties and interest, your State Department will be notified. As a result, you’ll be denied when you try to apply for a new passport. Current passport holders can have their privilege revoked. If it happens while you’re overseas, you may be granted a limited passport to return home. Other than that, you won’t be able to use your passport again until you resolve your tax problems.