The IRS takes in trillions of dollars in taxes every year and issues billions of refunds thereafter. That process kicks off for most, every April.
While people that are expected to file tax returns typically do so, a handful don’t. Whatever those people’s reasons for not meeting your obligations may be, ignoring your annual call to pay up begs the question of if there is a penalty for not filing taxes.
The answer to that question is a resounding yes. What your penalty is will depend on your situation. If you’re curious to know the possibilities of tax avoidance penalties, keep reading. Below, our team breaks down what the government could ask for/impose on you as well as a simple solution to these problems.
Paying Owed Taxes
If you’re lucky, not filing your taxes on time may only cost you the tax amount that’s due. This slap on the wrist “penalty” that asks you to break even with the IRS is likely to only rear its head if you have a great reason for missing your filing date. Even then, a deal like this is rare.
All that to say that if you miss the April deadline and the IRS just asks you to get around to filing/paying, consider yourself lucky.
In most cases, the penalty for not filing taxes will be that you have to pay what you owe plus interest. That interest will amount to roughly 3% of what you owe multiplied by the amount of time it takes you to send your money over.
Unbeknownst to most, the government takes large portions of the money it claims from taxpayers and loans that money out through federal loans to make the treasury richer. The 3% interest charge on late taxes helps offset the losses the government incurred by not having your owed tax dollars available to lend.
Failure to Pay Penalty
In addition to back taxes and additional interest, the government may levy a punitive penalty against you. The most likely one you’ll see is what’s called a failure to pay tax penalty.
Failure to pay fees punishes people that don’t submit their taxes on time and have no excusable reason for doing so. At the time of writing, these fees amount to 5% of your return amount to start and can climb all the way up to 47.5% depending on how long it takes you to pay what you owe.
Most people that don’t pay their taxes aren’t entitled to refunds, hence them avoiding filing. You may be surprised to learn though that some people are indeed entitled to make money off of the government via submitting their taxes and still don’t file.
In these cases, once people eventually get around to filing, they may run into the punitive penalty that is refund forfeiture.
As its name suggests, refund forfeiture disqualifies you from collecting your tax refund. A non-filer could potentially lose thousands of dollars in free money simply for procrastinating on their taxes.
In certain situations, refusal to pay taxes and ignoring IRS notices can result in wage garnishments. Garnishments allow the federal government access to your bank account or your employer’s payroll workflow. From there, they’ll withdraw monthly sums until your tax obligations have been satisfied.
Wage garnishments can be both scary and embarrassing from a privacy perspective since employers will be notified of your garnishments. Avoiding this penalty is usually as simple as contacting the IRS and working out a more agreeable 1099 late filing penalty, 1040 filing penalty, etc.
For non-filers that don’t have above-board wages to garnish, the IRS may come after your property.
The IRS has the ability to put a lien on your house which will make it so they’ll collect what they’re owed upon the sale of your property. That lien will continue to grow if you continue to refuse to make payments which may then result in the IRS taking possession of your home, evicting you, and reselling your property to make themselves whole.
Willfully evading taxes is a serious crime. It can land you in court and lead to serving years in prison in addition to all of the other penalties we’ve discussed.
That’s not to mention the legal fees you’ll need to pay as you fight evasion charges.
How Can You Avoid These Penalties?
Now that we’ve scared you with everything that could happen if you don’t pay your taxes, let us brighten things up by saying most serious tax penalties can be avoided.
The easiest way to avoid tax penalties is to pay your taxes on time. That can be done for free through several popular pieces of software. If you’re worried that you can’t afford your tax obligations, you can work out a payment plan with the IRS that’ll make what you owe more manageable.
Finally, if you’re behind on filing, you can always ask for an extension. Extensions are a great way to avoid punitive damages when you’re not ready to submit your taxes by the April deadline.
You Now Know the Penalty for Not Filing Taxes
Knowledge is power when it comes to taxes. This is especially true when it comes to understanding the penalty for not filing taxes.
We hope the education we’ve shared with you showcases the seriousness of tax evasion. Should you need additional guidance on how best to work through your tax troubles, know that there are several resources online, many of which exist on our blog.
Check out those helpful tips by diving deeper into our content today!