What if you do not file a tax return? What are the ramifications if you do not pay your taxes on time? Here are some of the potential consequences that you may face for not filing or paying your taxes on time.
Failure to File Penalty
Whether you owe taxes or expect a refund for a given tax year, it is important to provide the IRS with a tax return on or before April 15th of every year. If you miss the April 15th deadline you are subject to a penalty of 5% of the amount that you owe for each month you do not file. The penalty for failure to file can grow to 25% of the total unpaid amount. If you file a return 60 days after the due date of April 15th; you will be subject to a penalty of $135 or 100% of the unpaid tax liability, whichever is greater.
Failure to Pay Penalty
In addition to the failure to file penalty that you face for missing the filing deadline, you are subject to a failure to pay penalty of half of 1% of the unpaid balance. This amount is assessed each month that your taxes go unpaid and is capped at 25% of the unpaid amount. By filing for a tax extension by April 15th and paying 100% of the amount owed, you will avoid the failure to file and failure to pay penalties.
Loss of Tax Refund
If you are owed a refund by filing a timely tax return you will receive your refund promptly. The IRS will hold a taxpayer’s refund for up to 3 years. After that your refund is treated as a gift to the government.
Loss of Wages, Assets or Arrest
If you do not pay your taxes, the IRS will eventually pursue you. There initial contact will be a letter informing you of your outstanding liability. Ignoring this letter will result in possible wage garnishment and even seizure of your assets, such as your home or car. If the amount of your tax liability is deemed by the IRS to be excessive you may be arrested and charged with tax evasion, subject to a fine of up to $100,000 and up to 5 years in prison.
Suspension Of Driver’s License
Some states like New York are suspending driver’s licenses for those that have not paid their taxes.