Here’s What Happens When You Completely Ignore Your Tax Debt

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Ignoring your IRS bill is bad news. Read on to see what the consequences could be. 

Many people who file taxes end up being eligible for a refund. But some people end up in the opposite boat — they owe the IRS money from the previous tax year.

If you end up owing the IRS money and have the cash in your savings, you’re all set. But if you don’t have the money to pay, well, you have a situation on your hands.

The good news is that the IRS will work with you when you owe money and can’t pay. But if you blow off your tax debt rather than address the issue, you might end up regretting that decision.

When you ignore the IRS

The IRS does not take kindly to not getting the money it’s owed. To that end, if you ignore your tax debt rather than aim to pay it, the agency will have the right to:

Garnish your wagesSeize money from your bank accountSeize your vehicle or other personal property

None of these are things you want. You most likely do not want the IRS to take away a portion of your paychecks, for example. So a better bet is to not neglect your tax debt.

Reach out and ask for help

The IRS acknowledges that not everyone can satisfy a tax debt in full at a moment’s notice. If you end up with a tax bill you can’t pay, reach out to the agency and ask to get onto an installment plan. That will allow you to pay off your tax debt over time.

And to be clear, if you’re keeping up with your installment payments under your agreement, you won’t be considered delinquent on your tax debt. That means you’re protected from the IRS going after your wages and other assets.

How to avoid a future tax debt

Owing taxes isn’t ideal. If you want to avoid a scenario where you owe the IRS money, adjust your withholding so you’re having more tax taken out of your paychecks as you go.

Or, leave your withholding as is, but start setting money aside each month in a savings account. That way, you get to hang onto your money during the year. But if you owe some to the IRS, you’ll have a way to pay your tax bill.

Also, be mindful of extra income that could contribute to a tax bill at the end of the year. If you sell an investment at a profit during the year, for example, you might end up with a tax debt on your hands by virtue of a large gain. So a situation like that should prompt you to set aside some money for an upcoming tax bill. You may even want to make estimated tax payments if you’re earning extra money during the year, even if you’re a salaried employee.

Normally, it’s self-employed people who are required to make estimated tax payments on a quarterly basis. But in some cases, it could pay to do so even if you’re paid a salary.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More