According to the proverb popularized by Benjamin Franklin, nothing is certain in life except death and taxes. Paying taxes is an annual rite of passage for every American. But what would happen if you just chose not to pay them?
The majority of people have to file a federal income tax return with the Internal Revenue Service, and there are penalties if you do not do so by the tax deadline, which is typically April 15.
If you don’t file at all, you’ll be charged a failure-to-file penalty. The penalty is a fee of 5% of your unpaid taxes for each month or part of a month your tax return is late, up to 25%. In addition, if you file more than 60 days late, you’ll pay a minimum of $135 or 100% of the taxes you owe, whichever is less.
If you file your taxes on time but don’t follow through and pay them, you’ll face a failure-to-pay penalty, which is generally less than a failure-to-file penalty. The fee is 0.5% of your unpaid taxes for each month or part of a month you don’t pay, up to 25%. In addition to the fee, you’ll also owe interest at the federal short-term rate plus 3% on the unpaid amount.
This is why if you cannot pay the full amount of taxes you owe, it’s still better to file your return on time and pay as much as you can by the deadline to avoid penalties and interest.
If you continue to fail to file your income tax returns or effectively stop paying income tax, the IRS will begin an investigation. If an IRS auditor determines you knowingly and willingly neglected your taxes instead of making a mistake, you can face criminal and civil penalties.
Failure to file or pay taxes is a misdemeanor, while tax evasion and tax fraud are both felonies. In evasion and fraud, you purposefully conceal your assets and income from the IRS. All of these charges require paying restitution, which includes back taxes along with all the interest and penalties that have been accrued.
While this may sound scary, according to the IRS, the organization sees only about 3,000 criminal prosecutions per year, which is a small percentage of the hundreds of millions of Americans who file their taxes each year.
While you might know about the consequences of not paying your taxes, you might not know that there are hidden penalties for female consumers in what’s known as the “pink tax.”