It is not uncommon for people to have tax debt. While many want to quickly resolve the debt and move on with their lives, others choose to ignore it. Unfortunately, ignoring your tax debt does not make it go away, and it can actually negatively impact your life in a number of ways.
Here are the effects of unpaid taxes.
No federal tax refund
When filing your taxes, you may be due a refund. Typically, you would receive a check in the mail or have the money deposited into your checking or savings account; however, if you have a tax debt, the IRS will not issue your refund. Instead, the IRS will keep your refund and it will be put toward the balance due on your tax debt. And this will continue to occur until the total tax debt is paid off.
Interest and penalties
The IRS will add interest and penalties to your tax debt when it goes unpaid. You will likely see a total of 5% interest added to your tax debt every year it goes unpaid. This will ultimately increase the total amount of your debt. For many, as a debt steadily increases over time, it is harder for them to pay off the debt. This will likely happen if you wait too long to pay off your debt.
Denial or revocation of passport
Seriously delinquent tax debt can result in the denial or revocation of your passport. If your debt, including interest and penalties, is more than $53,000, it is considered seriously delinquent. Once the IRS certifies this debt to the State Department, if you apply for a passport, the application will be denied. If you already have a passport, it will be revoked.
Seizure of money and assets
If you own homes, vehicles, or other assets, the IRS can seize this property to cover the cost of your tax debt. This is known as a levy. In addition to having the option to seize your property, the IRS can take money from your bank accounts or money earned by your small business, and your wages can be garnished. This can create a challenge for you if you have other monthly expenses that you need to cover.
Debt collection
One of the ways the IRS may attempt to collect a tax debt is by turning it over to a private debt collection agency that will become responsible for collecting this debt. If this happens, the debt collection agency will contact you using a number of communication methods in an attempt to help you resolve your tax debt.
This can also negatively affect your credit score!
Tax lien
If your taxes go unpaid for a certain amount of time, the IRS will file a Notice of Federal Tax Lien. The property you own, such as your home or vehicle, will no longer be in your possession. And creditors will be aware of this lien, making it hard for you to get approved for any type of credit. There are ways to remove the lien and have possession of the property returned to you, but paying the tax debt is the simplest.
It is understandable that your budget may not allow you to pay your tax debt in full before the due date. It may be tempting to ignore your tax debt, but you’ll want to consider the consequences before you decide to not pay your debt. And with the IRS offering taxpayers multiple ways to pay their tax debt, it is possible to pay your debt and avoid facing similar consequences that other people faced when they chose to not pay their taxes.
Source: creditabsolute.com