Failure to pay taxes on or before the tax filing due date could lead to incurring tax debt and penalties for the majority of US citizens and permanent US residents who are obliged to pay their taxes every year. That’s why the question, “What happens if I can't pay my taxes?” is quite common among taxpayers who, for whatever reason, are unable to fulfill their tax obligations.

The consequences may also vary depending on whether you owe a hefty amount of tax debt or deliberately choose not to complete your tax duties.

If you’re currently facing difficulties preventing you from paying your taxes fully, this article will guide you in determining the possible alternatives you can take to manage your tax liabilities efficiently.

Key Takeaways

• Failing to pay taxes can lead to penalties or legal action, depending on your tax debt and the number of years that your taxes remain unpaid.
• If you can’t pay your taxes, whether on time or in full, you can file for a tax extension or apply for the IRS’ Installment Payment Plan.
• The Failure to File and Failure to Pay penalties are imposed on taxpayers who fail to pay or file their returns on or before the set tax filing due date.

What Happens If You Don’t File Your Taxes?

If you don’t file your taxes, you are likely to face either the “Failure to File” or “Failure to Pay” penalty. The IRS obliges most US citizens and permanent residents to pay their tax dues, typically on or before the tax due date.

The Failure to File penalty is imposed on taxpayers who did not file their returns for the recently completed tax year. Facing the said penalty could mean paying an additional 5% of the taxes you owe for each month your returns remain unfiled.

When it comes to Failure to File, the maximum penalty rate that you can face is 25%. However, it can increase to $510 or 100% of the unpaid taxes on your return if you don’t file your taxes in over 60 days.

Meanwhile, the Failure to Pay penalty charges an additional 0.5% to 25% of your unpaid taxes for every month that you fail to settle your tax debt. The only time you can be excluded from paying taxes is if you are tax-exempt.

What Happens if You Don’t File Your Taxes on Time?

If you don’t file your taxes on time, you will still face either the Failure to File or Failure to Pay penalty or both, depending on your circumstances.

But, if you know ahead of time that it is impossible for you to meet the tax filing deadline, you shouldn’t dwell too much on questions such as:

• What happens if I can't pay my taxes by the due date?
• What happens if I can't pay my taxes on time?

Instead, you should focus on filing for a tax extension to avoid incurring additional penalties over the succeeding months. A tax extension is a six-month period granted by the Internal Revenue Service to taxpayers so they can complete all the necessary documents needed to file their returns.

The tax extension due date for 2024 is October 15, 2024.

Now, what happens if you can't pay your taxes after getting an extension? You will face the same penalties as when you initially missed the tax-paying due date.

5 Responsible Things You Should Do if You Can’t Pay Your Taxes

If you can’t pay your taxes, there are still some possible countermeasures you can take to reduce your tax liabilities and inform the IRS of your circumstances.

Remember, choosing inaction when it comes to settling your tax debt could be misinterpreted as a deliberate disregard for your tax-paying responsibilities.

As such, if you don’t want to face legal action or hefty penalties, you can choose to take any of the following actions:

#1. File Your Return On Time

Despite not having enough finances to pay all of your taxes, it is still best to try to pay your taxes or file your returns on time. In doing so, you avoid incurring more penalties on top of your unpaid tax balance.

Stay updated with any announcements or changes from the IRS regarding the next tax filing deadline, and mark your calendars to ensure you don’t miss it.

#2. Pay As Much As You Can

If you are wondering: “What happens if I can't pay my taxes in full?” you’ll be happy to know that the IRS offers qualifying taxpayers some leeway to settle their tax balances. In that regard, you must aim to pay off whatever amount you can afford in the meantime.

The key is to reduce your tax liabilities moving forward while also committing to paying the remaining tax debt as soon as possible.

Focusing on paying off what you can is also a strategy for filing your taxes with no income.

#3. Apply for an Installment Payment Plan

If you can’t pay your taxes, you have the option of applying for an installment payment plan (also called an online payment plan), which is an agreement with the IRS that grants you an extended period to pay your taxes.

The IRS offers payment plans for individuals and businesses. At the same time, you can either qualify for a short-term or a long-term payment plan depending on the amount of taxes that you owe.

If the combined total of your unpaid taxes, incurred penalties, and interest is less than $100,000, you may qualify for the short-term payment plan. The payment period for the short-term payment plan is 120 days or less.

In contrast, if the total you owe the IRS is less than $50,000, you can choose the long-term payment plan instead and pay your tax dues within a minimum of 120 days or more.

#4. Make a Budget

If you are a freelancer or a business owner, make it a habit to set aside a portion of your earnings to pay your taxes. For freelancers, it would be ideal to create a pay stub budget or an expense plan based on their average monthly income.

For business owners, you should include your estimated or quarterly taxes when calculating your accruals and have a backup plan in place in case you face significant losses in the future.

#5. Request a Payment Extension

Another practical option, if you can’t pay your taxes, is to request a payment extension. Applying for a payment extension is a direct answer to taxpayers asking the “What happens if I can't pay my taxes right away?” question.

You can use any of the payment options offered by the IRS, including:

• Payment through a debit or credit card
• Direct Pay
• Electronic Federal Tax Payment System (EFTPS)

When filing for a payment or tax extension, you must also file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

What Can You Do If You Can’t Pay Your Taxes: 4 Practical Options

Now, what if none of the solutions enumerated above apply to your situation? The following practical options may work for you instead:

#1. Borrow Money

Borrowing or loaning money from the bank or a financial institution should be an option if you can’t pay your taxes, but only if you can commit to paying the loan amount plus interest within the promised timeframe.

If possible, prepare proof of income, such as copies of your last pay stubs or bank statements, to increase your chances of getting approved for a loan.

#2. Provide Proof of Financial Hardship

In some cases, the IRS may allow a temporary delay in collecting your tax dues if your financial circumstances prevent you from filing your returns.

You must be able to provide proof of your current financial situation, usually by submitting paychecks that show your earnings fall below the income threshold for withholding taxes.

Other types of documentation you can show, if applicable, include your medical expenses and outstanding debts. If you can prove your financial situation to the IRS, you may also have to file either of the following IRS forms:

• Form 433-A, Collection of Information Statement for Wage Earners and Self-Employed Individuals

• Form 433-B, Collection Information Statement for Businesses

• Form 433-F, Collection Information Statement

#3. Check If You Qualify for an Offer in Compromise (OIC)

The Offer in Compromise (OIC) is a type of settlement wherein the IRS allows you to pay less than the total amount of taxes that you owe.

You may qualify for the OIC as long as you do not have any ongoing bankruptcy proceedings or if you have a valid current year return extension. The Offer in Compromise Pre-Qualifier Tool is also available for you to use to check your eligibility.

#4. File for Unemployment Insurance

Your inability to pay your taxes may be the result of unemployment. As long as your unemployment is not voluntary, meaning that you did not resign from your job, you can try to claim unemployment insurance.

To do so, head to the nearest State Unemployment Insurance Office in your state and file a claim. You may be asked to file via phone, in person, or online, depending on the rules enforced in your state.

Make sure that you are filing your unemployment insurance claim within the state where you last worked. Since unemployment benefits are taxable, you can use the said financial aid to pay your taxes until you land a new job.

Do I Have to Pay Taxes All at Once?

You don’t necessarily have to pay taxes all at once, especially if you still don’t have enough money to pay off all of your tax debt and you are still in the middle of regulating your finances.

Understandably, you may have concerns like: “What happens if I can't pay my taxes by the due date?” After all, you will still continue to incur penalties for the succeeding months, and your taxes will remain unpaid.

Also, getting approved for a tax extension does not mean that your penalties won’t incur interest. But, should you attain the financial stability to settle all of your remaining tax dues, then you must pay off all your taxes, including your penalties and interests, all at once.

Be Aware of Tax Penalties

There are other tax penalties that you should be aware of aside from the Failure to File and Failure to Pay penalties we’ve discussed earlier. Some of the possible penalties that you can also face if you can’t pay your taxes include:

• Underpayment of estimated tax by individuals.This penalty applies when you fail to pay the correct amount for your estimated taxes.

• Information return penalty.You can also be subject to an information return penalty if you fail to provide all the required information on your tax return.

Always double-check all income and tax information you provide on your returns, and make sure that everything is correct, concise, and up-to-date.

File Your Taxes With Ease Using Paystub.org

An effective way to avoid incurring more penalties while you still can’t pay your taxes is to use a reliable online tool that will help you record your income taxes and estimate the taxes you owe seamlessly.

Paystub.org’s W-2 Form Generator lets you prepare for the tax deadline by using a ready-made template to record all your annual taxable wages, federal, state, and local income taxes, and voluntary contributions.

Our generator also has a built-in calculator to keep you from miscalculating your taxes and ensure you can set aside the right amount to pay your tax dues.

Final Thoughts

Now that you know the answer to the “What happens if I can't pay my taxes?” question, you can focus on assessing which countermeasure you can take to manage your tax liabilities.

When it comes to paying taxes, one of the reasons why some taxpayers in the US continue to incur tax debt is because they have limited knowledge about the regulations set by the IRS.

With that in mind, you can check out our blog for more guidance on all things taxes and to avoid incurring an IRS audit or penalties.

What Happens if I Can’t Pay My Taxes FAQ

#1. Can you go to jail if you don’t pay taxes?

No, you cannot go to jail if you don’t pay your taxes unless you are facing criminal charges or have been sentenced in a criminal proceeding for your unpaid tax debt.

Under the Internal Revenue Code Section §7201, taxpayers attempting to evade their tax obligations may face up to 5 years of imprisonment or pay up to $250,000 in fines.

#2. What happens if you don’t pay taxes for 10 years?

The possible consequence of not paying taxes for 10 years is simply receiving a Failure to File or a Failure to Pay penalty from the IRS.

After all, the Internal Revenue Service follows a 10-year limit when it comes to collecting taxes, interest, and penalties. The time limit commences upon their issuance of a Notice of Deficiency to the taxpayer.

On the other hand, you can still face legal action from the IRS or imprisonment if proven guilty of tax evasion and other illegal activities tied to your tax liabilities.

#3. Can you make payments to the IRS if you owe them?

Yes, you can, as long as you owe $50,000 or less in unpaid taxes, incurred interests, and penalties. Use the IRS Online Payment Agreement application to send a request for an installment agreement to settle your balance gradually.

#4. How much time will the IRS give me if I can’t pay my taxes?

The IRS will give you a six-month tax extension if you fail to pay your taxes on or before the due date. To file a tax extension, use Form 4868 or contact the IRS at 800-829-3676.