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What Happens If You Do Not Pay Your Taxes For Multiple Years?

For many people, submitting taxes is a simple process. Perhaps you have tax withheld from your salary and file your taxes. Alternatively, you could hire a tax professional to do it for you. Nevertheless, tax filing can become more challenging if you have side jobs or are self-employed. People may choose not to pay their taxes for a variety of factors. 

They may believe they will owe nothing and that the price of preparing them will exceed any small return they could obtain. Someone may attempt to avoid tax obligations by simply failing to file. Regardless of the reason, the repercussions of failing to file taxes can be severe. A current divorce or death may make things even more challenging. Let us consider what happens when you fail to pay your taxes for multiple years!

Penalties for Not Filing

If you do not file by the time limit, the Internal Revenue Service may levy a failure to report penalty. While you might not have the money to pay your taxes by the application deadline, failing to file on time will result in additional penalties. 

The penalty for filing late is usually 5% of the unpaid taxes for every month the return was late. The fine, however, is limited to 25% of the unpaid taxes. If you file the repayment more than 60 days after the initial or extended due date, the penalty is less than $135 or 100% of the unpaid tax.

The Internal Revenue Service advises paying as much as you are willing to pay and then pursuing one of the alternatives discussed below. Any intentional attempt to evade taxes is punishable by up to five years in jail and $250,000 in penalty fees under Internal Revenue Code 7201. People may unintentionally fall behind on their taxes. 

Perhaps a family member died, or you were diagnosed with a severe illness. Whatever the motive, it can be tempting to completely ignore it after not filing for several years. However, failing to file taxes for ten years or more can result in steep penalties and a prison sentence.

These were the sums for the 2022 tax year:

  • Single filers or married payers submitting separate returns pay $12,950.
  • Head of individual household taxpayers pays $19,400.
  • Married taxpayers' joint income or eligible widow(er)s can deduct up to $25,900.

Penalty for Failure to Pay

If you do not pay by the due date, the Internal Revenue Service may levy a penalty. This penalty usually equals 5% of the unpaid monthly taxes after the due date. This penalty is limited to 25% of the amount of unpaid taxes. 

The inability to file a penalty is usually greater than this punishment. Receiving a filing extension does not absolve you of the responsibility to pay your taxes. Suppose you receive an extension to file and pay 90% of your actual tax liability by the initial due date. In that case, you will not be penalized if the remaining balance is paid by the extension date.

Penalties with Exceptions

These penalties do not apply if you do not owe, expect to be reimbursed, or simply fail to file your tax return on time.

Furthermore, the IRS will not enforce these penalties if you can demonstrate your failure to pay or file was due to proper justification rather than willful neglect. 

Tax Refunds

If you have not paid your taxes for a few years and have a tax liability for those years, the IRS always wants as much of your unpaid debt as possible. You will also be charged interest on the taxes owed.

Tax Refund Not Received

You must submit tax returns for the previous three years to receive a refund. If you owe taxes, the same rule does not apply. Furthermore, if you offer a new return that results in a refund, you can use it to counteract the sum of taxes owed.

Time in Prison

The IRS has methods in place to allow people to come forward about unpaid tax debt. If someone has not paid taxes, the Internal Revenue Service may suggest they be put on trial for tax fraud. Nevertheless, the possibility of a person being imprisoned and failing to pay the remaining balance may be a deterrent to taking this route.

How to Pay Back Taxes

Often, a person struggles to pay all their back taxes at once. The IRS accepts a variety of payment methods, including:

Planned Payments

You may be capable of entering into an extended payment plan with the Internal Revenue Service in which you make monthly or weekly payouts until all back taxes are fully paid.

Compromise Offers

Instead of using alternate solution enforcement measures such as seizures or garnishments, the Internal Revenue Service could accept a lower amount to decide the debt. Please consult with a tax attorney about this option and its possible ramifications.