Pull out your shoebox of receipts and clear your calendar: Tax Day will be here soon.
But what happens if you don’t file a tax return? Will the IRS even notice?
Um, yes. Even if you don’t file, your boss, mortgage company and bank are reporting to the IRS with forms that contain your name and Social Security number. Except in certain circumstances — such as if your income is less than the standard deduction — you need to submit an annual return to calculate exactly how much you owe in taxes.
If you don’t, the consequences can range from mildly annoying to “your life will never be the same again.”
Following is a look at exactly what could happen if you fail to pay your taxes.
1. You could get hit with penalties
If you don’t pay your taxes, you will generally be assessed a financial penalty that gets worse the longer you wait to meet the obligation.
The exact amount you might owe depends on the nature of your error, and it can be a little complicated. To get the precise breakdown, check out IRS Topic 653.
For help avoiding this fate, check out “Can’t Pay Your Taxes? Here Are 5 Options.”
2. You could forfeit your refund
If you have a refund coming but don’t get around to filing, your refund can disappear. For you to receive a refund, the IRS generally requires you to file the corresponding return within three years of its due date.
3. The government could put a tax lien on your property
Once the IRS is done playing nice, the agency could start to do things that really make life difficult. For example, it might assess a federal tax lien on your property.
A tax lien is like the government claiming dibs on something of value you own. According to the IRS:
“If the lien is in place, you may find it difficult to sell or borrow against your property. The tax lien would also appear on your credit report ― which may harm your credit rating ― and your creditors would also be publicly notified that the IRS has priority to seize your property.”
4. Anyone can find out about your debt
It’s bad enough to be in debt; it’s worse when other people know. And a tax lien is a public record — meaning that not only can lenders find it, but potential landlords and employers can too.
5. Your passport could be revoked
If you haven’t paid your taxes, you may need to change your vacation plans. That’s because the The IRS will notify the State Department about those with seriously delinquent tax debt.
Once the State Department has been notified, it won’t approve an application for a new passport. It can also revoke your existing passport. If you should happen to be overseas when this happens, the government may give you a limited validity passport that you can use to come straight home to the US, where additional enforcement action may be waiting for you.
6. The government can garnish your income
It isn’t just your current assets the IRS can seize. It can institute a wage levy, taking part of your paycheck going forward.
The IRS isn’t subject to state and federal garnishment limits so the amount that could be pulled from your wages can be substantial. Here’s how TurboTax explains it:
“During 2022 for example, a single parent with two children who files as head of household can be left with as little as $542.32 per week. This means that if you earn $1,000 per week, the IRS takes $457.68 of it, and if you earn $2,000 per week, it can take $1,457.68. However, the amount of your garnishment will depend on how much tax you owe.”
7. The IRS will summon you
At some point after sending you notices — starting with an Information Document Request — the IRS may issue a summons to obtain information from you or compel your testimony to help with their investigation, according to Brager Tax Law Groupa law firm in the Los Angeles area.
If you get an IRS summons, get an excellent tax attorney to accompany you to the meeting and let that person do most of the talking.
8. You might have to file for bankruptcy
Let’s take this to its logical end. You didn’t or couldn’t pay your taxes, so you were charged penalties and interest. The government swooped in and collected your assets. Then, they started garnishing your checks. Now, you don’t have enough left over each week to pay the bills. Where does this end for you? In bankruptcy court.
However, this might not be the end, as filing for bankruptcy protection does not remove most prior tax debts, says legal website Nolo. You have to meet a host of conditions to wipe out tax debt as part of a Chapter 7 bankruptcy.
9. You could go to jail
What is the most awful thing that can happen if you don’t pay your taxes? You could go to jail.
Now, granted, you have to be really trying hard to get sentenced for tax evasion. The IRS doesn’t lock up folks who are simply having trouble paying their bill. But if you actively try to defraud the government, look out!