Tax Day: What happens if you don't pay your taxes?

It's Tax Day and is No matter how busy the IRS is, don't assume it won't notice if you don't pay your taxes.

Interest and penalties begin to accrue immediately after April 15, 2024, and continue until the balance is paid in full. Eventually, the government could garnish your wages, place a lien on your property or even revoke your passport.

Receiving an extension from the IRS allows you to avoid the penalty for filing a late return, but it doesn't change when payment is due.

Here's what could happen if you don't file or pay your taxes on time.

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The deadline for most people to file a 2023 return is April 15, 2024, at midnight local time.

Even if you can't pay your tax bill, you should submit a return: The penalty for failing to file is 5% of the unpaid taxes for each month your return is late. That's ten times the fee for failing to pay.

One of the easiest and fastest ways to file is with a tax-filing software program like TurboTax or H&R Block.

If you do not send payment, you risk losing any refund you're due. But the consequences can be much more severe if you owe money.

Penalties and fees

The IRS will begin charging interest on whatever taxes you owe immediately after Tax Day. The interest rate for individual taxpayers is determined by adding 3% to what is known as the federal short-term interest rate, which is set by the government every three months.

In April 2024, the short-term rate is 5%, so interest on unpaid taxes is 8%. (By comparison, it was just 3% in July 2020.)

You may also be hit with a failure-to-pay penalty of 0.5% per month. (If it's your first time or you can demonstrate a "reasonable cause" for failing to pay, the IRS may waive this charge.) As with the failure-to-file penalty, the maximum on the failure-to-pay penalty is 25% of the total balance due.

If both a failure-to-pay penalty and a failure-to-file penalty are being applied, the IRS will reduce the former by the latter. Instead of a 5% failure-to-file penalty, for example, you would be charged a 4.5% failure-to-file penalty and a 0.5% failure-to-pay penalty.

The combined maximum for both penalties is 47.5% (25% late payment and 22.5% late filing) of the tax due.

There is also a minimum penalty for late filing if your return is over 60 days overdue: Either 100% of the tax owed or $485, whichever is less.

Levies and liens

Within a few months, you can expect to receive letters from the IRS indicating how much you owe. These may be followed by collection notices or phone calls.

Eventually, you may receive a Notice of Intent to Levy, a letter indicating the IRS is prepared to seize your assets to cover the amount due. The agency can claim your home, car, bank accounts or even a portion of your paycheck.

After the Notice of Intent, you have 30 days to pay your balance, appeal or reach an agreement with the IRS before further action is taken. If you don't pay within 10 days of receiving the notice, the failure-to-pay penalty increases to 1% per month.

If you owe the IRS $10,000 or more, a lien may be placed on your home. A lien is a legal claim on your property, according to the IRS website, "while a levy actually takes the property to satisfy the tax debt."

The IRS will file a Notice of Federal Tax Lien "to alert creditors that the government has a legal right to your property." This may limit your ability to get credit, including refinancing your mortgage. If you sell your home, the IRS may claim a portion or all of the proceeds. Even declaring bankruptcy may not remove a tax lien.

Other consequences

If you still have not settled your account, the State Department may eventually refuse to issue or renew your passport. If you have a "seriously delinquent tax debt" (considered $62,000 or more) your passport may even be revoked.

The IRS has 10 years to collect unpaid taxes. While tax evasion and tax fraud are jailable offenses, you won't go to prison for not having enough money to pay your tax bill. That's why filing a return, even if you don't include full payment, is important.

If you're concerned your tax bill may be steep, you can set up an installment plan with the IRS. These payment plans include interest and a non-payment penalty of up to 25% of the balance due.

You can also apply for an offer in compromise (OIC), which is a request for the IRS to settle your tax bill for less than the amount that you owe. They're not commonly approved — only about a third of OICs were accepted in 2022 — but the IRS will consider your income, expenses and other factors when reviewing your request.

Aside from working directly with the IRS, you could also apply for a credit card with a 0% introductory APR to pay your taxes. There is a small processing fee when paying your taxes with a credit card, but if you can clear the balance before the introductory period is over, you'll avoid any interest.

The Amex EveryDay card's zero-interest period lasts for 15 months before it switches to a variable APR of between 18.24% and 29.24%. Cardholders also get a welcome bonus of 10,000 points if they spend $2,000 in the first six months after opening the card.

Not paying your taxes on time can lead to serious financial consequences, from heavy fines to having your home and assets seized. Even if you don't have the money to settle your entire tax bill, file a return and pay what you can to avoid additional penalties.

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