When you miss the tax payment deadline, the IRS imposes a penalty. Typically, the penalty is 0.5% of the unpaid taxes for each month or part of a month the taxes remain unpaid. This amount can add up quickly, especially if the payment is delayed for an extended period.

Accumulating Interest

In addition to penalties, the IRS charges interest on unpaid taxes, calculated daily. The interest rate is determined quarterly and is the federal short-term rate plus 3%. This compounding interest can significantly increase the amount you owe over time.

Wage Garnishments and Bank Levies

If unpaid taxes remain unresolved, the IRS can take aggressive collection actions. These include garnishing your wages, levying your bank accounts, or placing liens on your property. Such measures can disrupt your financial stability and daily life.

Damage to Your Credit Score

While the IRS does not directly report tax debt to credit bureaus, a tax lien, once filed, becomes public record and can negatively impact your credit score. This can make it challenging to secure loans, rent property, or make other significant financial moves.

Legal Consequences

In extreme cases, failing to pay taxes can result in criminal charges. Tax evasion, which involves willfully avoiding taxes, is a federal offense that can lead to fines, penalties, or even imprisonment.

One of the biggest mistakes is failing to file your tax return because you can’t afford to pay. Filing your taxes on time prevents the IRS from imposing a failure-to-file penalty, which is often more severe than the failure-to-pay penalty.

Set Up a Payment Plan

The IRS offers installment agreements for taxpayers unable to pay their full balance upfront. These plans allow you to make manageable monthly payments while avoiding more severe collection actions.

Request an Offer in Compromise

If you cannot pay your tax debt in full or through an installment plan, you might qualify for an Offer in Compromise (OIC). This allows you to settle your tax debt for less than the amount owed, depending on your financial situation.

Apply for a Penalty Abatement

If you have a valid reason for not paying on time, such as a medical emergency or a natural disaster, you can request a penalty abatement. This removes or reduces penalties, though interest charges will still apply.

Seek Professional Assistance

Dealing with the IRS can be overwhelming, especially if you owe a significant amount or face penalties. A tax professional can help you navigate the process, negotiate on your behalf, and identify the best course of action.