What happens if you don’t pay your taxes?

Tax Day—typically April 15 every year—can spark a lot of emotions. It can bring a sense of relief to those who are getting refunds. Or a sense of dread to those who owe—especially if times are tight.

But what happens if you can’t afford to pay your taxes? “Don’t panic,” the IRS says.

Key takeaways

• Tax returns and any amount you owe the IRS are typically due April 15 each year.
• Even if you can’t pay your tax bill, the IRS recommends you still file your taxes on time.
• If you can’t pay your taxes on time, you may have options—but those options could come with fees, interest and penalties.
• Federal tax rules and deadlines may differ from state and local laws.

If you can’t file or pay your taxes by the due date, the IRS could charge you monthly late payment penalties and interest on the money you owe. The maximum amount could be up to 47.5% of what you owe, which includes 22.5% for filing late and 25% for paying late.

The failure-to-pay penalty on federal taxes is based on a lot of different factors. But in general, the IRS says penalties are based on how long overdue tax payments are.

The IRS may have 10 years to try to collect your unpaid taxes. As part of the collection process, the IRS says it could file tax liens, file tax levies (seize property), garnish wages, refer the debt to a private collection agency, and deny or suspend passports.

Understanding how the IRS works and what your options are could help you manage a stressful situation. And remember that state and local tax rules may be different from federal regulations.

Even if you can’t pay your taxes on time, it’s still important to file them by the due date. If you don’t, you could get charged higher late fees and penalties.

In the past, the IRS has said that “submitting a tax return and paying any amount owed as soon as possible—even if money’s tight and you can’t afford to pay your taxes in full right now—can help you avoid further interest and penalties.”

If the IRS owes you a refund, there’s no failure-to-file penalty—but you could forfeit your refund after three years.

According to the IRS, if you can’t pay your taxes, you could reduce the penalty and interest amounts by paying as much as you can as soon as possible. The agency also says you could consider paying the full amount with a loan that has fees and interest rates that are lower than those of the IRS, such as a credit card, bank loan or home equity loan. 

If that’s not possible, you may have other options:

Extensions might be available from the IRS for both tax filing and paying. 

IRS forms 4868 and 1127 may be good places to start. Form 4868 is for requesting a six-month extension to file your taxes. And Form 1127 is for requesting an extension to pay your taxes due to undue hardship. 

You could also request the IRS delay collection if paying your taxes on time would leave you without enough money to pay for your basic living expenses. And keep in mind that the IRS also considers payment extensions for disaster victims and taxpayers who are living overseas or serving in a military combat zone.

An IRS payment plan could allow more time to pay. But plans could add fees, penalties and interest to tax bills.

Short-term payment plans could give you up to 180 days to pay your taxes. Long-term payment plans are paid in monthly installments. But they may charge a setup fee, which could be reduced or waived for low-income taxpayers.

According to the IRS, you may qualify to apply online. To be eligible, the tax, penalties and interest you owe must be either:

• $100,000 or less for a short-term payment plan, or
• $50,000 or less for a long-term payment plan.

There may be other ways to apply too:

• In person at a taxpayer assistance center
• By calling 800-829-1040
• By submitting Form 9465 by mail to one of these IRS addresses

But keep in mind that the setup fees could cost more than with an online application.

According to the IRS, an offer in compromise (OIC) is one way to settle your tax debt for less than the amount you owe. 

The IRS says if paying your full tax bill isn’t possible—or if doing so would create financial hardship—it may be an option: “We generally approve an offer in compromise when the amount you offer represents the most we can expect to collect within a reasonable period of time.”

The IRS says it bases its decision about an OIC on factors like: 

• Ability to pay
• Income
• Expenses 
• Assets

You could use the OIC Pre-Qualifier tool to see if you meet the eligibility requirements.

The Taxpayer Advocate Service (TAS), an independent organization within the IRS, offers free services. And it says its advocates are there to help those who have tax problems they can’t resolve on their own.

The TAS offers things like low-income tax clinics, volunteer income tax assistance, counseling for the elderly and Problem Solving Days.

You can find a TAS advocate online or by calling 877-777-4778. There’s also a TAS qualifier tool to find out if your tax issue is something the TAS can help with.

Owing taxes—especially if it’s more than you can afford right now—could affect your ability to pay other bills or buy the things you need. To help get yourself in a better financial situation for next year’s tax season, you could consider things like creating a budget and cutting expenses.

The IRS recommends filing taxes on time even if you can’t pay. And if you do owe, there may be options available, such as extensions, payment plans and counseling. Just be sure to consider how fees, interest and penalties might add to your tax bill. And don’t forget to check on rules for local and state taxes.

There’s plenty more to filing and paying taxes. Learning more about things like what taxes are, taxable income or talking with a tax expert could help.