Julian Drago
July 8, 2025
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Not paying your taxes in the United States might seem like a minor oversight, but over time, it can become a serious issue. Whether due to lack of information, limited cash flow, or simple neglect, failing to meet your tax obligations can result in penalties, interest, wage garnishments, and even legal actions. The good news is that the IRS offers different options for those who show a willingness to resolve their situation.
In this article, we explain what happens if you don’t pay your taxes, how penalties are calculated, what alternatives you have to regularize your situation, and why acting early is the best path forward.
If you don’t pay your taxes on time, the IRS will charge a failure-to-pay penalty. This penalty equals 0.5% of the unpaid amount for each month or part of a month the debt remains unpaid. The penalty continues to accrue monthly until it reaches a maximum of 25% of the total amount due.
For example, if you owe $2,000 in taxes and go five months without paying, the penalty will be $50 per month, totaling $250. If you don’t resolve the situation, the penalty will keep increasing until it reaches the $500 cap.
In cases where the IRS has already issued a levy (meaning it has notified you of its intention to enforce collection), the monthly penalty can increase to 1%.
If you file your tax return on time and enroll in an approved IRS payment plan, the monthly penalty drops to 0.25%. This is a good option for individuals who cannot pay the full amount upfront but are willing to take responsibility gradually.
This is one of the most severe penalties. If you fail to file your return by the deadline (usually April 15) and don’t request an extension, the IRS may impose a 5% monthly penalty on the unpaid tax amount. This penalty also has a maximum of 25%.
Importantly, both the failure-to-pay and failure-to-file penalties can apply simultaneously. However, if they overlap in the same month, the combined penalty cannot exceed 5%. In that case, the IRS applies 4.5% for late filing and 0.5% for late payment.
In addition to penalties, the IRS charges daily interest on the total outstanding balance, including taxes, penalties, and any administrative fees. The interest rate is adjusted quarterly and is usually higher than traditional bank interest rates.
This means that even if new penalties stop accruing, your debt will continue to grow daily until it is fully paid.
If you don’t pay and fail to communicate with the IRS to arrange a plan or explain your situation, the agency can initiate enforced collection actions. Some of the most common include:
In most cases, not paying your taxes does not lead to criminal charges. The IRS typically treats these situations as civil matters, especially if you demonstrate a willingness to cooperate. However, if the IRS detects fraud or intentional evasion—such as falsifying income or deductions—the case can escalate to criminal court, potentially leading to up to five years in prison.
It’s essential to distinguish between being unable to pay and refusing to pay. The IRS tends to be more flexible with taxpayers who communicate and seek solutions.
The key is to act early. Here are some available alternatives:
It’s always better to file your return on time, even if you can’t pay in full. This avoids the higher failure-to-file penalty and shows your intent to comply.
You can arrange an installment agreement with the IRS. There are simplified plans for debts under $10,000 and more flexible options based on your income. You can apply online or by mail.
In exceptional situations, the IRS may accept less than the total owed. To qualify, you must prove that paying the full amount would cause significant financial hardship.
If you're facing a critical situation—such as unemployment, illness, or very low income—you can request that the IRS temporarily suspend collection efforts. This doesn’t eliminate your debt, but it prevents enforced actions while you stabilize your situation.
If you need more time to prepare your return, you can request an extension until October 15. While this doesn’t extend your payment deadline, it does help you avoid the failure-to-file penalty.
The worst thing you can do is ignore the situation. Failing to address your tax obligations can lead to:
Also, there is no statute of limitations if you never file your return. The IRS can take action at any time, no matter how many years have passed.
If the IRS owes you money but you don’t file your return, you won’t receive your refund. In fact, after three years, you lose the right to claim it. Additionally, failing to file delays the statute of limitations for audits on previous years.
Generally, the IRS allows between 10 and 21 days from the date of the notice to make payment. If you don’t pay, collection actions like levies or garnishments may begin.
Your plan may be canceled, and full penalties could be reinstated. You may also lose eligibility for future agreements.
Yes. The IRS accepts credit card payments, but service fees may apply depending on the third-party processor.
There’s no time limit if you never filed. The IRS can pursue the debt indefinitely, which is why it's crucial to resolve your status as soon as possible.
At Openbiz, we understand how challenging it can be to navigate tax obligations in a foreign country. Whether you need help filing, setting up a payment plan, or reducing penalties, we can help you find the best solution.
Talk to our team and avoid letting a small issue turn into a major financial crisis. Resolving it in time is easier than you think.
Contact us and let us guide you step by step.
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