If you owe back taxes to the IRS and cannot afford to pay, there are some potential consequences like liens, levies, and even jail time in rare cases. However, the IRS mainly wants people to file and pay their taxes properly, not punish them. There are options like payment plans, offers in compromise, and penalty abatement that can help taxpayers who owe back taxes they cannot immediately pay in full.
Can you go to jail for not paying taxes you owe the IRS?
It is extremely rare for someone to go to jail for not paying taxes they owe. The IRS mainly wants people to comply and pay their tax debts, not punish them with jail time. Here are some key points on whether you can go to jail for owing back taxes:
- Jail time is very unlikely for owing taxes – The IRS rarely pursues criminal charges and jail time for owed taxes alone. Jail is typically reserved for more extreme tax evasion cases involving fraud.
- Jail time may occur for other related crimes – While not paying taxes alone won’t result in jail, if you commit other crimes like tax fraud, filing false returns, or tax evasion you may face charges and prison.
- You may get IRS notices and collections instead – If you owe back taxes, the IRS will send notices demanding payment and can take enforced collection actions like levies if you don’t pay.
- The IRS can only pursue jail for intentional violations – You have to willfully attempt to evade paying taxes to potentially face criminal charges.
So while it’s technically possible to go to jail if you intentionally evade taxes, just owing money to the IRS and not being able to pay will not land you in prison. The IRS predominantly takes civil actions like liens and levies for unpaid taxes.
What can happen if you owe back taxes and can’t pay?
If you get behind on paying taxes you owe to the IRS, here are some potential consequences and collection actions the IRS may take:
- Tax lien – The IRS can place a lien on your property, giving them claim to seize that property if the tax debt remains unpaid.
- Levy – The IRS can levy your wages, bank account, or other assets to seize them toward paying your tax balance.
- Penalty and interest charges – You’ll owe extra penalties and interest on unpaid tax debts that keep growing over time.
- Loss of certain rights – You may lose tax refunds, your passport, or professional licenses over unpaid taxes.
Some other potential impacts of owing back taxes you cannot immediately pay include damaged credit scores, difficulty getting loans or mortgages, and stress or anxiety over the growing tax debt. The IRS will expect you to eventually pay what you owe.
Can the IRS or collections garnish your wages for back taxes?
Yes, the IRS can garnish your wages to collect unpaid back taxes. Wage garnishment is one of the IRS’s strongest enforced collection tools. Here’s how IRS wage garnishments work:
- The IRS must first send you a Final Notice of Intent to Levy giving 30 days to pay before garnishing wages.
- If you do not pay, the IRS can contact your employer demanding they withhold a portion of your paycheck to send to the IRS.
- There are limits – The IRS cannot garnish more than the lesser of your total tax debt or a percentage of your disposable income, as defined by law.
- You can request a Collection Due Process Hearing to appeal the proposed levy action.
Having your wages garnished can put significant financial strain on you. It’s best to seek alternative resolution options like payment plans if you get an IRS notice threatening to levy your paycheck.
Can you negotiate with the IRS on taxes owed?
Yes, you can negotiate with the IRS on taxes you owe through some different resolution programs and collection alternatives:
- Payment plans – The IRS may agree to a monthly installment plan based on what you can afford.
- Offer in compromise – You can offer to settle your tax debt for less than the full amount owed in some cases.
- Penalty abatement – You may qualify to have penalties waived or reduced if you show reasonable cause.
- Currently not collectible – The IRS may temporarily delay enforced collections if you have financial hardship.
The key is to be proactive and contact the IRS early once you have a tax debt you cannot fully pay. Negotiating before the IRS begins garnishments or other enforced collections will give you the best chance at the most favorable resolution options.
Can the IRS seize your assets like bank accounts or property?
Yes, the IRS can seize assets like your bank accounts or property to satisfy unpaid tax debts through levies or liens. Some key things to know:
- The IRS may levy your bank account to seize funds toward paying taxes owed.
- They can place a lien on your home or other real property as claim against that asset.
- The IRS must provide written notice before asset seizure and there are exemptions for key assets.
- You can challenge asset levies through a Collection Due Process Hearing.
Having your assets seized can be devastating. It’s best to avoid this by working with the IRS early on setting up a payment plan or negotiating other relief options.
Can the IRS reduce taxes you owe if you can’t afford to pay?
Yes, the IRS may agree to reduce the total taxes you owe through some different resolution programs:
- Offer in compromise – The IRS may let you settle for less than the full amount owed in some hardship situations.
- Penalty abatement – You may qualify for a reduction in failure-to-pay penalties due to reasonable cause.
- Innocent spouse relief – A spouse may qualify to be relieved of tax debt incurred solely by the other spouse.
- Currently not collectible – The IRS may temporarily delay enforced collections during financial hardship.
The key is showing the IRS that you cannot afford to repay the full tax debt, and that reducing the taxes is the only viable solution. This typically requires detailed financial information about your income, expenses, assets, and liabilities.
Should you contact a tax professional or the IRS first if you owe back taxes?
It is generally recommended to first contact a tax professional for guidance if you get behind on taxes owed to the IRS. Some key reasons why:
- They can review your situation and determine the best resolution options.
- They negotiate with the IRS on your behalf and represent your case.
- A tax pro can help protect your rights and assets during collections.
- You get expert advice tailored specifically to your tax situation.
That said, you can contact the IRS directly yourself if you cannot afford professional help. The IRS agents can explain available options and procedures given your financials and circumstances. But working with a pro gives you the best chance at the optimal resolution.
Conclusion
Owing back taxes you cannot afford to pay can lead to stressful IRS collection actions like wage garnishments or property seizures. However, jail time is very unlikely if you work with the IRS to become compliant and pay off the taxes over time. The IRS offers payment plans, reduced settlements, penalty relief, and other options to help taxpayers in these situations get back in good standing. Contacting the IRS early and being proactive is key – their main goal is collecting the money owed, not punishing people. With the right approach and negotiating, you can often resolve unpaid tax debts even with limited finances.
