The federal government imposes income taxes on a wide variety of income sources, from wages earned at a job, to savings account interest, investment gains and gambling winnings. Income earners are responsible for reporting taxable income to the Internal Revenue Service and paying taxes as necessary according to IRS rules. Failure to pay taxes can result in tax penalties, collection actions and in some cases, prison time.
Late Payment Penalty
Income taxes are generally due by April 15 of the year following a given tax year. If you do not pay the total amount of tax you owe by the due date, the IRS imposes a late payment penalty of one-half of 1 percent of the amount owed each month until the tax is paid, up to a maximum of 25 percent. The government also charges interest on unpaid taxes at rate of equal to the federal short-term interest rate plus 3 percent
Late Filing Penalty
If you owe taxes to the government and fail to file a tax return by the due date, you are subject to a late filing penalty. According to the IRS, the late filing penalty is equal to 5 percent of the tax owed per month, up to a maximum of five months. When a tax return is over 60 days late, the minimum penalty is the lesser of $135 and the full amount of tax owed.
The government can take legal actions to collect unpaid taxes if you don't pay taxes in full when you file your tax return. The IRS can potentially take ownership of your property, such as a car, boat or home, and sell it off to satisfy your tax debts. The government can also levy your wages, bank account, Social Security benefits or retirement income to collect taxes.
Tax evasion refers to illegally avoiding taxation. Tax evasion can take many forms, such as hiding income, lying on tax returns or inflating tax deductions. Tax fraud is a federal felony that can lead to substantial penalties and prison time. According to Cornell University Law School, tax evasion can result in fines of up to $100,000 for individuals, $500,000 for corporations and up to five years of imprisonment.
- Internal Revenue Service: Topic 653 - IRS Notices and Bills, Penalties and Interest Charges
- Internal Revenue Service: Frequently Asked Questions For Past Due Return Filers
- Internal Revenue Service: Topic 201 - The Collection Process
- Cornell University Law School: Tax Evasion
- Internal Revenue Service: Civil and Criminal Penalties - Abusive Tax Schemes
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.