What happens if I don't pay my taxes?

If you don't pay your taxes you could be subject to fees, penalties and refund withholding. Eventually, it could lead to garnished wages, liens on your property or you could have your passport revoked. Even if you're having issues paying your tax bill in full, make sure you file your return or for an extension on or before April 15, 2024.

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What Happens if You Don’t Pay Your Taxes?

March 5, 2024

6 min Read

Written by Caitlyn Moorhead

Edited by Melanie Grafil

A young woman sits at a desk late at night and tries to work on her taxes.

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Few people get excited about filing their income tax return with the Internal Revenue Service each year, but on-time filing is necessary to avoid penalties, interest, liens and levies. Also, falling behind on your taxes creates unnecessary stress because paying back taxes can be a long process. If you don’t want to do your taxes yourself there are many tax software programs or accounts that specialize in helping you with your unique tax situation.

Quick Take: What Happens When I Don’t File My Taxes?

The federal income tax deadline for individuals is Monday, Apr. 15, 2024, for the 2023 tax year. Although there are a few exceptions, filing taxes is a must, so not filing your taxes could have serious consequences. Here are a few key takeaways:

You’ll be subject to a tax penalty for not filing. Not filing your income tax return can lead to IRS penalties, including a failure-to-file penalty.
The penalty is 5% of the tax owed per month or part of the month the return is late, up to 25% of the tax owed.
You’ll miss out on IRS refunds if you fail to pay your taxes or file your tax return.
Filing a tax return doesn’t necessarily mean that you owe money. In fact, most taxpayers get a refund when they file their income tax returns — about two-thirds of individual taxpayers were entitled to refunds last year, according to the IRS.
If you don’t file a return, the IRS can’t refund the extra money to you.
If you don’t file your tax return for three years after the return’s original due date, you lose your right to claim that money and will remain unpaid due to the statutes of limitations.

What Happens When I Don’t Pay My Taxes?

Because your tax obligation is imposed by the federal government, not paying your taxes could leave you in a worse financial situation than you started in. There is a range of potential fallout for not paying your taxes such as getting your wages garnished or even having your passport revoked, however, here are three main consequences for not filing or paying when you should:

You could be subject to a tax penalty for not paying.
You could be subject to IRS tax liens.
You could be subject to an IRS tax levy.

1. You Could Be Subject to a Tax Penalty for Not Paying

If you don’t pay your taxes when you file, you will end up paying more because of these penalties:

Failure-to-pay penalty: The IRS charges a 0.5% penalty on the tax owed for each month or part of the month, if the payment is late, up to 25%. Setting up an approved payment plan reduces the monthly penalty by half. The rate becomes 1% if the tax is still unpaid 10 days after the IRS issues a notice of its intent to levy property.
Interest: Interest accrues on your unpaid taxes from the date the tax is due based on the federal short-term rate, which is currently 3%, plus 3%. Interest compounds daily.

2. You Could Be Subject To IRS Tax Liens

When the IRS determines that you owe taxes, it will send you a letter stating the amount you owe, known as a Notice and Demand for Payment. If you don’t pay the debt on time, the IRS can file a Notice of Federal Tax lien, which informs creditors of your tax debt and can damage your credit score.

The tax lien affects all of your property, including your home, car and bank accounts, and gives the IRS the right to the proceeds of any of your property in the event you sell it. In the case of a home sale, “the tax lien is paid out of the sales proceeds at the time of closing.” It can take up to 30 days from the time of your tax payment until the IRS releases the lien.

3. You Could Be Subject To an IRS Tax Levy

If you don’t pay your taxes after receiving a Notice and Demand for Payment, the IRS will then send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days in advance of the levy. If you have not resolved the tax debt at that time, the IRS can seize your property, including your house or car, and sell it to pay what you owe, and/or have your employer pay your wages to the government instead of to you. Social Security benefits and retirement income are also subject to seizure.

Excuses for Not Filing Taxes

It’s hard to find a legitimate reason for not filing taxes that the IRS will accept. Here are some common excuses people might use for not filing taxes — and reasons why you shouldn’t use these excuses:

“I don’t have time to do my taxes.” Life can be hectic, but the filing deadline is not until April, plus you’re also entitled to request a six-month extension to file your taxes. But, this is only an extension for filing your taxes, not for paying what you owe.
“The IRS will never find out if I don’t file.” The IRS receives matching copies of your W-2, 1099s and other forms that document your income from the various entities that pay you. If your employer doesn’t report your wages, the IRS will question the employer’s tax return if it claims deductions for wages paid to you.
“I can’t pay my taxes.” If you can’t pay your entire tax bill, reach out to the IRS. Short-term payment plans or installment agreements are available that can minimize interest and penalties on your income tax return.
“I didn’t receive tax forms.” You should receive the tax forms you need to file your return by the end of January. If you do not receive them, contact your employer or financial institution to make sure it has your correct address. If that doesn’t work, call the IRS at 800-829-1040 for assistance. You will need your employer’s address and phone number, your dates of employment and approximate earnings. You are still responsible for estimating what you owe and filing on time. If you need to make changes, you can always file an amended tax return.

Final Take To GO: Get Help With Your Income Tax Return

Assessing your taxes for each month or year can be confusing, however, you should file your return on time, regardless of whether or not you can pay your tax bill on time. If you need help filing or paying, the IRS offers several free tax help options for low-income taxpayers, including help to file taxes online. The IRS can also set up a payment plan to help you avoid owing more than you already do or to help you pay the back taxes you owe.

Michael Keenan contributed to the reporting for this article.