What Happens If You Don’t File Taxes? Penalties, Interest and Next Steps

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Few people get excited about filing their income tax return with the Internal Revenue Service each year, but on-time filing is necessary to avoid penalties, interest, liens and levies. The IRS could even garnish your wages or sell certain assets — like a vehicle or real estate — to collect on any unpaid taxes.

And if that’s not enough, falling behind on your taxes creates unnecessary stress because paying back taxes can be a long process. If you don’t want to do your taxes yourself there are many tax software programs or accounts that specialize in helping you with your unique tax situation.

What Happens When I Don’t File My Taxes?

The federal income tax deadline for individuals is Tuesday, April 15, 2025, for the 2024 tax year. Typically, you must pay taxes when you file. However, filing Form 4868 could get you an automatic six-month extension.

This year, individuals and businesses impacted by Hurricane Helene have until May 1, 2025 to file and pay their taxes. Impacted states include Alabama, Georgia, North Carolina, South Carolina, and parts of Florida, Virginia and Tennessee.

Although there are a few exceptions, filing taxes is a must, so not filing your taxes could have serious consequences. Here are a few:

• You’ll be subject to a tax penalty for not filing. Not filing your income tax return can lead to IRS penalties, including a failure-to-file penalty. 
• The penalty is 5% of the tax owed per month or part of the month the return is late, up to 25% of the tax owed.
• You’ll miss out on IRS refunds if you fail to pay your taxes or file your tax return.
• Filing a tax return doesn’t necessarily mean that you owe money. In fact, most taxpayers get a refund when they file their income tax returns — about two-thirds of individual taxpayers were entitled to refunds last year, according to the IRS. Even taxpayers in higher federal income tax brackets may be entitled to a refund.
• If you don’t file a return, the IRS can’t refund the extra money to you. Even just filing late could delay your tax refund.
• If you don’t file your tax return for three years after the return’s original due date, you lose your right to claim that money and will remain unpaid due to the statutes of limitations.

What Happens When I Don’t Pay My Taxes?

Because your tax obligation is imposed by the federal government, not paying your taxes could leave you in a worse financial situation than you started in. There is a range of potential fallout for not paying your taxes such as getting your wages garnished or even having your passport revoked.

Financial Penalties

Here are three immediate penalties for not paying when you should:

1. You could be subject to a failure-to-file penalty
2. You could be subject to a failure-to-pay penalty
3. You could be subject to interest charges 

Failure-To-File Penalty

The failure-to-file penalty occurs when you don’t file your tax return on time. The penalty is 5% of the unpaid taxes for each month (or partial month) the return is late, up to 25%.

You’ll receive a notice from the IRS indicating you owe the failure-to-file penalty. The exact penalty is based on how late you file and the total tax you owe as of the original due date (excluding estimated tax payments and any refundable tax credits).

The minimum penalty is subject to change. If the return due date is after Dec. 31, 2024, the minimum penalty is either $485 or 100% of the underpayment, whichever is less.

Failure-To-Pay Penalty

The IRS charges a 0.5% penalty on the tax owed for each month or part of the month, if the payment is late, up to 25%. Setting up an approved payment plan reduces the monthly penalty by half. The rate becomes 1% if the tax is still unpaid 10 days after the IRS issues a notice of its intent to levy property.

It’s possible to be subject to a failure-to-file penalty and a failure-to-pay penalty. In that case, the failure-to-file penalty will be reduced by the failure-to-pay penalty, capping out at 5% for each month.

Individuals who file an on-time tax return and have an approved payment plan may still be subject to a failure-to-pay penalty. However, it is reduced to 0.25% of the amount owed per month or partial month.

Interest Charges 

If you don’t pay taxes, the IRS will charge you interest — also called underpayment interest. This can happen even if you end up filing an extension.

Interest accrues on your unpaid taxes from the date the tax is due based on the federal short-term rate. Interest compounds daily. If you overpay in interest, the IRS will refund you the overpaid amount.

Note that underpayment interest will increase until the balance is repaid in full. To reduce how much you owe in interest charges, it’s important to pay back what you owe as soon as possible. If you can’t do this, consider applying for a payment plan.

The less you owe, the lower your interest charges will be. If you qualify for penalty relief or amend your return, you may also reduce the amount of interest owed.

You can also dispute the interest charges if you have a qualifying reason, such as an unreasonable error or delay on the IRS’s part.

Legal Consequences

Here are two long-term consequences for not filing or paying when you should:

1. Your tax debt could end up in IRS collections
2. You could be subject to additional legal action

Tax Liens and Levies

When the IRS determines that you owe taxes, it will send you a letter stating the amount you owe, known as a Notice and Demand for Payment. If you don’t pay the debt on time, the IRS can file a Notice of Federal Tax lien, which informs creditors of your tax debt and can damage your credit score.

The tax lien affects all of your property, including your home, car and bank accounts, and gives the IRS the right to the proceeds of any of your property in the event you sell it. In the case of a home sale, “the tax lien is paid out of the sales proceeds at the time of closing.”

The IRS will only release the lien once you’ve fully paid your taxes, any interest charges, penalties and recording fees, or if the IRS is no longer able to legally collect the tax. Even then, it can take up to 30 days from the time of your tax payment until the IRS releases the lien.

If you don’t pay your taxes after receiving a Notice and Demand for Payment, you could also be subject to an IRS tax levy. The IRS will send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days in advance of the levy.

If you have not resolved the tax debt at that time, the IRS can seize your property, including your house or car, and sell it to pay what you owe. Social Security benefits and retirement income are also subject to seizure.

The IRS could also issue a wage garnishment to your employer notifying them you owe taxes. Once received, your employer must withhold some funds from your wages, including salaries and non-wage payments like commissions or royalties, until the debt is repaid.

Criminal Charges

In addition to fines, interest charges and the possible threat of wage garnishment, liens or levies, you could also face jail time. This only occurs in extreme cases, such as when you’ve committed tax fraud or tax evasion. An inability to pay will not result in jail time.

Excuses for Not Filing Taxes

It’s hard to find a legitimate reason for not filing taxes that the IRS will accept. Here are some common excuses people might use for not filing taxes — and reasons why you shouldn’t use these excuses:

• “I don’t have time to do my taxes.” Life can be hectic, but the filing deadline is not until April, plus you’re also entitled to request a six-month extension to file your taxes. But, this is only an extension for filing your taxes, not for paying what you owe.
• “The IRS will never find out if I don’t file.” The IRS receives matching copies of your W-2, 1099s and other forms that document your income from the various entities that pay you. If your employer doesn’t report your wages, the IRS will question the employer’s tax return if it claims deductions for wages paid to you.
• “I can’t pay my taxes.” If you can’t pay your entire tax bill, reach out to the IRS. Short-term payment plans or installment agreements are available that can minimize interest and penalties on your income tax return.
• “I didn’t receive tax forms.” You should receive the tax forms you need to file your return by the end of January. If you do not receive them, contact your employer or financial institution to make sure it has your correct address. If that doesn’t work, call the IRS at 800-829-1040 for assistance. You will need your employer’s address and phone number, your dates of employment and approximate earnings. You are still responsible for estimating what you owe and filing on time. If you need to make changes, you can always file an amended tax return.

Filing Late vs. Not Filing

Here’s a look at what can happen if you file late versus not filing at all.

Actionable Steps If You Haven’t Filed

If you haven’t yet filed or find yourself unable to pay your taxes, take immediate action to try to get ahead of the situation. Here are a few options.

Step 1: File as Soon as Possible, Even If You Can’t Pay

Filing avoids extra penalties, like the failure-to-file penalty. Even if you can’t afford to pay your taxes right now, and even if you still end up owing interest or a failure-to-pay penalty, filing can ease the financial burden a little.

Step 2: Pay What You Can

Though you may not have the cash to pay your tax bill in full, partial payments can help reduce penalties.

You can also try an offer in compromise. This is when you settle your tax debt for less than what you originally owed. It may be an option if you find yourself unable to pay your tax liability or if doing so would lead to severe financial hardship.

The IRS is most likely to approve an offer in compromise if the amount offered is higher than the amount they would otherwise have received. To be eligible, you must meet the following conditions:

• Filed all necessary tax returns
• Made all required estimated payments
• Not be in an open bankruptcy proceeding
• Have a valid extension for the current year’s tax return (if applicable)
• Be able to pay the $205 nonrefundable application fee
• Submit an application package (either Form 433-A for Individuals or 433-B for Businesses)

Other requirements may apply, so consult with a professional or review the IRS Form 656-B, Offer in Compromise Booklet to aid you in the process.

Step 3: Set Up a Payment Plan

Request a payment plan with the IRS. This lets you pay what you owe over a period of time — usually in monthly installments.

While under a payment plan, you won’t be subject to an IRS levy. The IRS’s ability to collect is also either suspended or prolonged. Plus, you’ll have more time to get a handle on your tax bill.

Be aware that payment plans may come with set-up fees and other costs. Your monthly installment amount will depend on your total tax bill and the plan you’ve chosen. Interest and other penalties can still add up if you have a payment plan, but you may be able to waive certain fees if you qualify as a low-income taxpayer.

Conclusion

Assessing your taxes for each month or year can be confusing. However, you should file your return on time, regardless of whether or not you can pay your tax bill on time.

In the short term, failing to file and pay your taxes could result in interest charges or other penalties like the failure-to-file and the failure-to-pay penalty. More serious repercussions include tax liens, levies and other legal action taken against you.

If you need help filing or paying, the IRS offers several free tax help options for low-income taxpayers, including help to file taxes online. The IRS can also set up a payment plan to help you avoid owing more than you already do or to help you pay the back taxes you owe.

Angela Mae and Michael Keenan contributed to the reporting for this article.

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