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Top 6 Effects of Unpaid Tax Debt


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You might not believe it now, but unpaid taxes and the possibility of being audited by the IRS can cause significant problems in your life. The longer you leave your back taxes, the bigger the problem gets. This is why knowing what will happen if you fail to pay your taxes is essential.

Not paying your tax debt can have harsh consequences, including wage garnishment and passport revocation. Here’s a list of the most common effects:

1. IRS Failure-to-File Penalty

One of the most common penalties for someone with unpaid taxes is the failure-to-file penalty. This type of penalty is 5% of the total tax owed for each month a person fails to file, up to 25%. The failure-to-file penalty is assessed on an amount equal to your tax liability if you had filed a return, not on the amount of taxes paid during that period.

2. IRS Failure-to-Pay Penalty

If you don’t settle your tax bill by the due date, you could be hit with an IRS failure-to-pay penalty. It is equal to 0.5% of the amount of tax not paid by the date stamped on your notice. It is also applied every month until your bill is fully paid. It’s important to note that this penalty only applies when you fail to pay by the due date; if it takes months before you finally settle, only one monthly fee will be charged.

The failure-to-pay penalty increases to 1% if you ignore an IRS notice of intent to levy. Ten days after the IRS mails you the letter, the rise takes place. However, the fine is reduced to 0.25% if you work out a payment plan with the IRS. That represents a 50% reduction from the standard rate the IRS levies for unpaid taxes.

The IRS also charges interest in addition to the failure-to-pay penalty. The interest rate is 3% plus the federal short-term rate, which adjusts every quarter. The overall interest rate on federal income taxes comes to about 4%; as a result, it may be higher depending on the national short-term rate for the given quarter.

3. Accrual of Tax Debt Interest

Interest is the biggest reason taxpayers accrue a higher balance on their outstanding tax bill and is one of the significant reasons taxpayers require tax debt relief resolution.

Interest is charged on the total tax owed and not just the amount owed for the current year.

Interest is compounded daily and starts to accrue from the date your return was filed or the due date (whichever is later).

The IRS may collect interest from you by deducting it from any refund owed to you, charging it to your credit card if one was used for payment, or if neither of these options is available, pursuing other collection methods such as levying bank accounts or garnishing wages.

If a taxpayer fails to make amends with their taxes when due through any means (check payment/bill payment), interest will be charged after 30 days from the issuance of the notice & demand letter!

4. Liens, Levies, Wage Garnishments

There are several ways to collect an unpaid tax claim. The most common is through a lien, which applies to real property like land and houses. A tax lien is essentially a declaration on the property that says you owe the government money. If the government can’t collect money from your assets, it will look at other sources of income—like future tax refunds or wages—to pay off your debt.

A levy is a legal process used to collect taxes from people and entities who have failed to pay. The IRS can take action to levy your bank account, wages, and other income sources. In some cases, levies may be issued for tax liabilities that have already been paid but not yet reimbursed.

When you are indebted to the IRS, they can also come after your compensation. A wage garnishment is a court order requiring your employer to withhold and send part of your wages directly to a creditor. It’s a way of collecting unpaid debts.

As soon as you owe money on back taxes, there’s a possibility of having your wages garnished by the IRS until all debts are satisfied. Even if you’re employed full-time and making decent money in an entry-level position, the IRS may take all your earnings away until your account balance has been paid off in full (or nearly so).

The collection process starts when the IRS sends you a letter telling you they will take resources out of your paycheck until the debt is paid off. If you don’t respond within 30 days, they’ll start taking money out automatically.

When you are in this situation, it is best to consult tax debt relief professionals who will guide you in settling your back taxes and making sure your properties are intact.

5. Passport Revocation

If you owe more than $51,000 to the IRS, they can revoke your passport. If your debt is that high, they will likely issue a warrant for your arrest if you leave the country and don’t return within ten years (or under some other circumstances).

If you are a citizen of the United States and have been going overseas with legitimate identification, such as a driver’s license or green card, then this may raise concerns about whether it would be safe for people to leave the nation without having their passports first revoked by the IRS.

However, most experts agree that there should be no impact on traveling without a passport until an arrest warrant has been issued against them by U.S authorities; at which point their options would become limited until their debt had been paid off in full or settled somehow outside of court proceedings (such as through bankruptcy).

6. Tax Evasion Charges

Tax evasion is a serious crime that can lead to serious penalties. If you are indicted with tax evasion, it’s crucial to understand the potential consequences of a conviction.

Tax evasion is usually considered a felony and carries heavy fines and prison sentences for repeat offenders. The IRS will go after people who do not pay their taxes after repeated attempts to collect them, including charging them with tax evasion if they continue not to pay what they owe.

Additionally, state governments may classify unpaid taxes as misdemeanors or felonies depending on how much money has been owed and how long it has been overdue. In some cases when someone has committed fraud against the government while trying to avoid paying your tax obligation, they can also be charged under federal laws such as mail fraud or wire fraud (which will apply even if no actual mail was used).

Don’t let your tax debt spiral out of control. Get tax debt relief early on before you face any severe consequences!

If you’ve been notified that tax dues have been placed against your name, it’s crucial to take action immediately. The IRS is not going away, so don’t think that ignoring them will make the problem disappear. Ignoring a tax debt will only lead to more severe penalties and interest charges. If unpaid for long enough, these debts can lead to liens being placed against property and seizure of assets such as bank statements or even vehicles if owned by the person who owes the taxes.

At 833IRSHelp, we’re dedicated to helping you eliminate your tax debt and get back on track by providing the best customer service possible and offering affordable services that fit your budget.

Our team comprises experts in tax law, including tax preparation, tax planning, and IRS representation. We get the picture of the significance of staying on top of your taxes, especially if you have an outstanding balance due.

Don’t wait until it’s too late—get tax debt relief now!

We hope this post has brought you information to understand the seriousness of tax debt and how it can impact your life. People are not uncommon to steer clear of paying their taxes due to ignorance, apathy, or lack of resources. Still, if you are having issues with your taxes, we strongly encourage you to seek help from a professional tax expert. The IRS provides various tax debt relief programs, such as Offer-in-Compromise, Installment Agreement and Penalty Abatement enables you to settle your tax debt without incurring additional penalties or interest charges, so don’t wait until it’s too late!

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