What would happen if I just didn’t pay my taxes? That question has probably crossed your mind at least once.
But rather than finding out the hard way, here are some likely outcomes.
You’ll owe more. If you’ve committed yourself to not ever paying taxes, this may not matter to you. But if you’ve decided you aren’t going to file this year because you’re tired of doing it, you may want to rethink that plan.
We’re not talking about filing and not being able to pay what you owe. (If that’s the case, don’t panic. The IRS has a reputation for being easy to work with.)
But if you’re feeling tax inertia, you should do what you can to pay your taxes by the April 15 deadline, or ask for a six-month extension by filing Form 4868. No, the ground won’t open up and swallow you whole if you fail to do either. You won’t likely be carted off to jail or lose your house. But you will be penalized with fees.
You’ll eventually learn this when you receive a letter from the IRS, according to John Gregory, a tax practitioner and founder of 1040Return.com, which provides tax preparation software and tax resources for individuals and businesses.
“The IRS will calculate your income for you, using the worst case, which would be filing you as a single individual with one exemption. Based upon these deductions, the IRS will calculate your tax liability with penalty and interest,” Gregory says.
In other words, if you don’t do your taxes, the IRS will file them for you.
While it may sound like a great way to spare yourself the hassle of filing your taxes, this is hardly free professional tax help. Gregory breaks down what you’d owe if you had $30,000 in reportable income in 2012 and didn’t pay taxes for it until 2015. In that case, you would owe $2,653 in back taxes. About half of that sum would be due to tax penalty fees for failing to file and pay up.
And we still haven’t gotten to the interest you’d pay.
“Generally, interest accrues on any unpaid tax from the due date of the return until the date of the payment,” Gregory says. “The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily. So you would accumulate approximately $159 in interest.”
You’ll spend extra time and money cleaning up your mess. Assuming this was a momentary blip in judgment and you later decide to pay your taxes, you should factor in the amount of time and money it’ll take to catch up.
“You’ll likely need to pay a tax professional more to fix your tax situation than you would have paid to file properly in the first place,” says Benjamin Sullivan, a certified financial planner with Palisades Hudson Financial Group, based in Scarsdale, New York.
Your creditworthiness may take a hit. If you have piles of unpaid back taxes, eventually — usually by the time you owe the IRS $10,000 — the federal government will put a lien on your property, most likely your house. You might also get hit with a state tax lien or one from your county. These are documents filed with the county government; if you sell your home, before you see any profits, the government will take what you owe first.
But before that happens, tax liens show up on your credit report as unpaid debts, and they will have a significant negative impact on your credit score. The appearance of a tax lien or liens may not prevent you from getting a loan — for a credit card or car, for example — but you can probably kiss any low-interest loans goodbye.
In general, your monetary life may get very uncomfortable. You probably won’t go to jail, although it is possible, especially if you’re extremely wealthy and the government determines you’re purposely trying to defraud it.
Otherwise, you’re looking at various potential scenarios from having your property seized to wages garnished. At the very least, if you owe the IRS money, once you begin filing again, any refunds you get will instead go to the pile of money you owe the government. Unpaid interest will keep mounting.
“The IRS moves slowly, but they do move, and the longer you delay paying your back taxes, the more penalty and interest will accumulate,” Gregory says.
Now: If you want to pay your taxes but don’t have the money, be honest and tell the IRS you’ll pay off what you can, Sullivan advises.
“It’s better to be upfront,” he says. “You can arrange to pay your debt monthly by submitting Form 9465, Installment Agreement Request. If you really don’t have the ability to pay your full tax liability, the IRS allows you to settle your tax debt for less than the full amount you owe by submitting an offer in compromise.”
That should be a last resort, Sullivan adds, since it’s relatively rare to get this exception. The IRS only agrees to this when it knows it probably can’t get any more than the offer in compromise, Sullivan says.
It’s more likely that you’ll try the Installment Agreement Request, especially if you’re only behind one or two tax years. Even there, you’ll end up owing extra cash, money you wouldn’t have had to pay if you had paid your taxes on time.
It costs $120 to set up a monthly installment plan, Gregory says, which assumes you’re mailing the payments. If the money comes directly out of your account, it’s only $52.
So maybe Benjamin Franklin wasn’t completely right when he declared that “nothing can be said to be certain, except death and taxes.” After all, some individuals don’t make enough money to file or pay taxes, and you may end up surviving not paying the IRS what you owe, as long as you can live with the stress of mounting tax debts, a shrinking credit score and continually receiving certified and registered letters from the IRS, informing you of your latest lien on your home.
Whether your intentions are good or you really want to get out of paying your taxes, one thing is for sure. Cheating death is a lot more fun than cheating the IRS.
More from U.S. News
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What Happens If You Don’t Pay Your Taxes? originally appeared on usnews.com
