If you’ve filed your tax returns and owe money, what happens if you don’t pay? The IRS has a system in place to collect taxes, and the agency can be strict about following the rules. Once you file, you immediately owe your tax debt, so if you don’t pay that debt, the agency will take steps like those listed below to collect it.
If you cannot pay your debt when you file, you still need to file. There are programs that exist with the IRS to help you. Here are a few tips on how to meet your obligations to the IRS even if you don’t have the money when you file.
Fees for Not Filing
The IRS expects you to file your taxes. It is your legal obligation, so it is important to file on time. When you don’t file, you will be assessed a failure-to-file penalty. For every month your tax returns are late you are assessed a penalty of five percent of your unpaid taxes. That means you will pay $50 on every $1,000 you owe each month you are late. In addition, if you file more than 60 days late you will also be assessed a minimum of $135 or 100% of your tax debt, whichever is less.
Fees for Not Paying Taxes
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If you file your taxes but don’t pay them, you will have to pay a failure-to-pay fee. The longer you go without paying, the more this will end up costing you. You will be assessed a 0.5% penalty for every month you don’t pay, but the penalty may be capped at 25%. In addition, you’ll be responsible for paying interest on the unpaid taxes, which accrues every month.
Installment Agreements
The IRS may be strict, but the agency isn’t cruel. The agency knows that sometimes people need time to pay their debts, and it will allow taxpayers to set up installment agreements. One option you have is to set up a short-term installment agreement that gives you up to 120 days to pay your debt. You will not have to pay a fee, yet interest and penalties still accrue.
A long-term installment agreement allows you to pay your debt over a longer period. You will have to pay a set-up fee, and you are still responsible for penalties and interest. This option can offer significant relief to those in the midst of financial difficulty.
Filing for Bankruptcy
Filing for bankruptcy should always be a last resort. Bankruptcy can damage your credit, and depending on how you file, bankruptcy can result in a liquidation of your assets to pay off your debt, including taxes.
Some bankruptcy filings allow you to retain your assets while you set up installment plans to pay off your debt. While this doesn’t eliminate your debt, it does provide some relief.
No matter what your tax situation is, you should always file on time. You might not be able to pay your debt immediately, but you will face penalties for not filing. And if you cannot pay, you can find a solution, rather than incurring penalties and fees.