What Happens If You Don’t Pay Your Taxes on Time?
Understand the standard process that unfolds when taxes go unpaid. Learn about the consequences and the established pathways the IRS provides for resolution.
Failing to pay your taxes on time is a common situation. The Internal Revenue Service (IRS) has defined procedures for these circumstances, including consequences for late payment and structured pathways for taxpayers to resolve their outstanding liabilities and prevent further complications.
Penalties and Interest Charges
When a tax liability is not paid by the April 15 deadline, the IRS automatically adds penalties and interest. The primary penalty is the Failure-to-Pay penalty, calculated at 0.5% of the unpaid taxes for each month the debt is unsettled. This charge accrues monthly until the penalty reaches 25% of the original unpaid tax bill.
The Failure-to-File penalty is higher at 5% of the unpaid taxes for each month a return is late, also capped at 25%. For returns filed more than 60 days late in 2025, a minimum penalty applies, which is the lesser of $510 or 100% of the tax owed. If both penalties apply in the same month, the Failure-to-File penalty is reduced by the Failure-to-Pay penalty amount. Filing on time, even without full payment, avoids the larger penalty.
In addition to penalties, interest is charged on the total underpayment, including the unpaid tax and accrued penalties. The interest rate is determined quarterly, set at the federal short-term rate plus three percentage points, and it compounds daily, causing the debt to grow faster.
If an individual files on time and enters into a formal payment plan with the IRS, the Failure-to-Pay penalty rate is reduced to 0.25% per month for the duration of the agreement. The IRS may also grant a first-time penalty abatement, which can forgive the Failure-to-Pay penalty for taxpayers who have a clean compliance history.
The IRS Collection Process
The IRS collection process begins with automated notices sent by mail. The first notice for an unpaid balance is the CP14, which states the amount owed and serves as a formal demand for payment. If the balance remains unpaid, the IRS sends more letters outlining potential collection actions.
If notices are ignored, the IRS may file a Notice of Federal Tax Lien. A lien is a public legal claim against a taxpayer’s current and future property, including real estate and personal assets. It secures the government’s interest and can negatively impact a person’s ability to obtain credit.
Following a lien, the next step is a levy, which is the actual seizure of assets to satisfy the tax debt. Before a levy, the IRS must send a Final Notice of Intent to Levy, providing a 30-day window to make arrangements or appeal. Common actions include a bank account levy or a wage garnishment, where an employer withholds a portion of an employee’s paycheck.
In cases of a “seriously delinquent tax debt” exceeding $62,000 in 2025, the IRS can certify this debt to the State Department. The State Department generally will not issue a new passport and can revoke an existing one, restricting international travel until the tax issue is resolved.
Options for Resolving Unpaid Taxes
For those needing a brief period to gather funds, a short-term payment plan allows up to 180 additional days to pay the full balance. Interest and penalties continue to accrue until the amount is paid off. This plan can be set up directly through the IRS website.
A long-term solution is an Installment Agreement (IA), which allows individuals to make monthly payments for up to 72 months. To qualify for a streamlined IA online, a taxpayer must owe under $50,000 in combined tax, penalties, and interest. The application can be completed online or by filing Form 9465.
An Offer in Compromise (OIC) allows certain individuals to resolve their tax liability for less than what they originally owed. The IRS may accept an OIC if the taxpayer can demonstrate that full payment would create an economic hardship. The agency evaluates an individual’s ability to pay, income, expenses, and asset equity.
In situations of financial hardship, a taxpayer may be placed in Currently Not Collectible (CNC) status. This status temporarily suspends collection efforts like levies and wage garnishments, though the IRS may still file a Notice of Federal Tax Lien. To be placed in CNC status, a taxpayer must provide financial information proving they cannot cover basic living expenses. The IRS will periodically revisit the case to determine if the taxpayer’s financial situation has improved.