Have you ever received a letter from the IRS and instantly panicked? The Internal Revenue Service can be intimidating at times, especially if your taxes are overdue. But can a late tax payment actually land you in jail?
The short answer is yes. After over a decade of working on taxes, I can tell you that it’s not common, but it’s possible. If you owe the IRS money, they will give you the opportunity to address the issue before it escalates to this extreme. But committing tax evasion or continuously failing to pay your taxes on time can both lead to legal consequences, including jail time in extreme cases. Here’s the advice I give my clients and how it can help you, too.
The difference between tax evasion and failure to pay
Tax evasion is when you intentionally avoid paying taxes — often by underreporting income or falsifying tax records.
For example, if you earn $100,000 annually but knowingly only report $60,000 on your tax return, that’s fraud. It’s a criminal act that can lead to severe consequences, including jail time. The IRS treats such cases as criminal offenses because they involve intentional deceit.
Failure to pay, on the other hand, occurs when you owe taxes but cannot pay the full amount owed by the due date. This may be due to a financial hardship or errors in your tax withholding. Honest mistakes or late payments generally lead to IRS penalties and late fees, not prison. While both tax evasion and failure to pay are very serious, tax evasion involves intentional wrongdoing and carries harsher consequences like criminal charges.
That’s why it’s crucial to report all income accurately — no matter how small — and ask a qualified tax professional if you have questions. If you want to reduce your tax liability, there are many legal ways to do so, such as tax deductions and credits without falsifying documents and breaking the law.
What could happen if you don’t pay your taxes
It’s not uncommon to face an unexpected tax bill that you can’t afford to pay immediately. If you can’t pay your taxes on time, the IRS doesn’t immediately resort to extreme measures. Instead, the agency will begin sending notices that outline your balance and explain how it was calculated.
Depending on what your letter entails, interest and penalties may also start accruing. If these notices are ignored, the IRS could then go after their money in other ways, such as garnishing your wages (deducting a portion of your paycheck), placing a lien on your property or even seizing funds from your bank account.
The IRS typically starts with audits, collection letters and then repayment options. However, if unpaid taxes are ignored for an extended period, they could lead to a tax evasion case and potential jail time. While prison sentences for unpaid taxes are rare, they are possible. If the IRS sends you a letter in the mail, I recommend responding promptly and reaching out to a tax professional if you have any questions.
Watch out for tax scams. The IRS will never initiate contact via phone or email. If you receive a call or email claiming to be from the IRS, it’s likely a scam. The IRS will always begin with mailed notices, which include instructions and contact information.
What to do if you can’t afford your tax bill
Your tax bill is due on April 15 this year, even if you file an extension. If you’re unable to pay your full tax bill, don’t panic. The IRS offers payment plans that you can set up online or with your tax preparer.
If your bill is significantly larger and you can’t afford to pay the full amount, you can also apply for an offer in compromise. This agreement lets you settle your debt with the IRS for less than your tax bill.
For example, if you’re unable to pay a tax bill that’s $60,000, you may be able to settle your debt for $10,000 under the OIC program. With this option, the IRS will consider your income, expenses and assets to confirm if you qualify for a lower repayment option.
If you have questions about your tax liability, it’s always best to schedule an appointment with a tax attorney or certified public accountant.
Double-check your tax return before you file it
It’s not likely that you’ll go to jail for making a late tax payment to the IRS — but it’s important to make sure you’re not underreporting your income and paying less than you owe. When you’re filing your tax return, make sure you double-check the income you’re reporting. You’re responsible for any errors or omissions, even if they were accidental.
If you have a tax bill, work with a tax professional to understand your repayment options to avoid other consequences. The IRS provides a directory of qualified tax professionals which can be very helpful when you don’t know where to start.