What Happens When You Don't File And Pay Your Income Taxes?
With a tax code that appears to be more complicated than rocket science, an American tax system is a massive machine. Because of the Internal Revenue Service, many of us have grown to dread April 15th (IRS). In actuality, taxes have historically given Americans a bad taste in their mouths. Tax burdens imposed on the American colonies by Great Britain are to blame for this nation's abhorrence of paying taxes. Every consumer good, including legal documents and tobacco, was taxed on the colonists. Numerous uprisings resulted from this "taxation without representation".
Even though a revolt isn't right around the corner right now, many of us have fantasized about one. Have you ever pondered what would occur if you missed one year of filing and paying your taxes? Although the majority of Americans seem to only consider the tax code and the IRS when April approaches, the tax process is truly ongoing. Employers are compelled by law to deduct employment taxes from their workers' wages. Self-employed people are still obligated to deduct taxes from their own paychecks.
In actuality, filing income taxes starts the moment a person starts a new employment. The pay is agreed upon by the employee and the employer and is included in the gross income at the end of the year. When hired, one of the first tasks for a new employee is to complete all tax documents, including a W-4 form. Information on the employee's withholding allowance, including the number of dependents and childcare costs, is listed on the W-4 form. The data on this form informs an employer of the precise amount that must be deducted from a worker's paycheck as federal income tax.
Since your tax status could change from year to year, the IRS advises that you review this form annually. The employer deposits the withheld funds into an authorized financial institution as soon as it receives them. To inform the IRS of how much money has been deducted from each employee's pay, a report is sent on a quarterly basis. At the conclusion of the year, another report is submitted.
What Are The Consequences?
Let's assume that you choose not to file this year. The government would not be happy at all, just like every other agency that is due money. It would initially tell you of your forgetfulness in a letter. You would get more letters if you didn't reply. The government would eventually deliver a last letter, but this time it would be accompanied by a bill. It seems that the government has a right to estimate your income based on your prior behavior. A substitute for return, or SFR, is what this is. Let's imagine that since your last filing, when you were in a higher tax rate, you were laid off and had to accept a large salary cut to find work. Your bill would be significantly greater than it otherwise ought to be if the government based its judgment on your prior employment.
The majority of SFRs simply incorporate the standard deductions, even if, for instance, your work stayed the same with equivalent wages. This excludes any further deductions that you may be eligible to make. Failure to file charges or pay them on time might result in penalties and fines as well. These fines might range from 50% to 75% of the total amount originally owing. You have two choices after receiving a bill from the government:
- Even if there is an overpayment, you still pay the taxes. You can later appeal the amount in tax court and submit again, this time remembering to include the proper deductions, etc.
- You opt to make no payment at all.
You might incur even greater costs if you pursue your own revolution against taxation. The government is allowed to recover its funds however it sees proper. It can:
- Put a levy on your checking account.
- Make a lien against your house.
- Take your car, boat, or any other valuable personal item.
Simply put, there are several civil and even criminal penalties, including jail, that can be imposed for failing to file, failure to pay, and tax evasion.