If you’re a person who makes money in the United States, there’s a good chance that you’ll need to file taxes each and every year. Whether single, married, or a widow(er), it’s your responsibility to determine whether you qualify for filing taxes. If you do, by April 15th, the federal tax deadline, your taxes must be accurately filed and fully paid. So, what if they’re not? Depending on your specific situation, failure to file or pay your taxes may result in a number of consequences. Oftentimes you’ll be subject to tax penalties, which will run you a pretty penny at up to 50% of your unpaid tax amount. You may even face wage garnishment or property seizure. This may have you wondering, can you go to jail for not paying taxes? The short answer is: yes, but only in very specific situations. We’ll walk you through those scenarios, and help you understand the true consequences of not paying your taxes.
What Happens When You Don’t Pay Your Taxes?If you missed your tax deadline, you should expect to hear from the IRS. Their first line of action comes in the form of tax penalties. You’ll receive a letter from the IRS, known as a penalty notice. The specifics of your penalty notice will depend on your particular misgivings. Let’s run through the most common penalty notices and their consequences:
- Failure to Pay or Underpayment: If you’ve filed your taxes but haven’t yet paid the full amount of money that you owe the IRS, you’ll be hit with a failure to pay or underpayment penalty notice. This penalty accrues at a rate of 0.5% of your total unpaid amount for each month that your payment is late. For instance, a payment that is 12 months late will run you a penalty of 6% of your unpaid amount. This penalty maxes out at 25% once you pass the 50 month late mark.
- Failure to File: If you failed to file altogether, you’re in hotter water with the IRS. The failure to file penalty accrues at 5% of your unpaid amount per month you’re late. Much like the failure to pay penalty, it maxes out at 25%, but you’ll get there much more quickly.
- Failure to Pay Estimated Taxes: If you earn money that isn’t taxed throughout the year, such as self-employment income, rent, interest, or more, you may need to pay estimated quarterly taxes. If you owe more than $1,000 to the IRS and fail to pay quarterly taxes, or grossly underestimated the amount you needed to pay throughout the year, you’ll be fined around 4% of the amount you owe.
- A federal tax lien: This is a legal claim to your property that can be placed 10 days after you receive a penalty notice, if you don’t take action. A federal tax lien includes all of your property, and continues to apply to new property that you amass as long as the debt is unpaid and the federal lien is still in place. A federal tax lien is public record and may affect your credit score and appear on your credit report. It will only go away once your tax debt is paid in full.
- Levy of property: The IRS may also levy, or seize, your property if your tax debt remains unpaid. That could include your home, car, or more. Again, the levy will only go away once the tax debt is paid in full.
- Levy of assets: Another option the IRS has is to levy your assets such as wages, known as wage garnishment, bank accounts, social security benefits, or retirement income to compensate for the amount of money that you owe.
Scenarios That Lead To Jail TimeThere are a few scenarios where the answer to “can the IRS put me in jail?” may be yes. When it comes to determining whether a situation with your taxes will lead to jail time, the main determination is whether you committed an offense that the IRS views as civil or criminal. The aforementioned scenarios are considered dealt with in civil proceedings, meaning they likely won’t land you in jail. The IRS knows that tax laws can be excruciatingly complex and that mistakes happen, which is why the IRS considers these offenses to be negligence, i.e. carelessness, rather than tax fraud, which is intentional deception. Let’s review tax fraud and its potential consequences.
What Is Income Tax Fraud?Tax Fraud, or tax evasion, is deliberate falsifying of information in order to limit tax liability. That means that someone has intentionally lied on their tax forms with the intention of owing less taxes to the IRS or inflating their tax return. Tax fraud can occur in a number of ways, some of which are more difficult to prosecute than others. That’s because, in order for the IRS to convict a person of tax fraud, they must be able to prove with concrete evidence that the fraud committed was both intentional and deliberate. Tax fraud may include things such as:
- Intentionally underreporting or omitting income
- Overstating or falsifying deductions
- Misrepresenting personal expenses as business expenses
- Fabricating false records