What happens if you blow your tax bill?

As of the end of February, the average tax refund issued by the IRS in 2024 was $3,213. But what happens if you don’t have any money to refund on your taxes this year? What if you have to pay the IRS back instead?

There are many reasons why you may receive a tax bill this year. Last year, many people had more money in their savings accounts than usual due to rising interest rates. So if that happens and you’ve been earning a lot of interest income, you may now have to write a check to the IRS.

Or maybe you decided to take on a side job in 2023 but forgot to pay estimated taxes on the extra income. This may result in you being underpaid.

Having to write a check to the IRS during tax season can be a huge embarrassment. But what if you don’t have the money to do so? There may be a tendency to ignore problems and hope they will go away. But doing so can have serious financial consequences.

If you completely pay off your tax debt,

Starting in 2023, if you don’t file the full amount you owe with the IRS by this year’s April 15 tax return deadline, you’ll be charged interest and penalties for each month (or partial months) you don’t pay. Paying off that debt. This can add up to a lot of money over time.

Moreover, if you don’t attempt to pay your tax bill, the IRS will eventually try to garnish your wages. This doesn’t mean the agency will take your entire salary, but it may receive a portion.

Wage garnishment does not happen immediately. If you don’t pay your taxes by April 1st, your paycheck won’t be garnished on May 1st. Rather, the IRS will send you a notice about past-due bills. If you blow them, you could end up losing part of your paycheck.

You can pay off your tax debt over time

You might blow your tax bill because you know you don’t have the money to cover it. But that’s not a good idea and could end up worsening your financial situation. A much better option is to contact the IRS and apply for an installment plan that allows you to pay your taxes over time.

One option you may want to look into is an offer in compromise, which allows you to settle your tax debt for less than the total amount you owe. However, the IRS tends to be quite picky about agreeing to reduce or waive tax liability.

Typically, for this option to work, you must prove that you are physically unable to pay your tax bill (for example, if you suffered a career-ending injury) or that it will cause you significant financial hardship. So this is not an option that most people should look forward to.

Having to pay money to the Internal Revenue Service (IRS) instead of receiving a refund is no fun. But if that’s the situation you’re in, don’t blow your tax bill and hope the IRS forgets. The IRS may be flawed and have limited resources, but it’s very good at recovering money you’re owed. So the best thing to do is acknowledge your tax bill and take steps to pay it gradually in a way that works for you.

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