Can You Go to Jail for Not Paying Taxes?
6 MIN READ
Published October 12, 2023 | Updated November 14, 2023
If you fail to file your taxes or pay them on time, you may be subject to Internal Revenue Services (IRS) penalties. When your tax debt piles up, it may result in property seizure, liens, and wage garnishment. But can you go to jail for not paying taxes?
You won’t go to jail simply for owing tax debt. Jail time is usually for taxpayers who evade taxes or commit tax fraud. The IRS doesn’t pursue cases for people who can’t afford to pay taxes. But, you may face jail time if you conceal income and assets or if you intentionally commit tax violations.
What Really Happens When You Don’t Pay Your Taxes?
In some cases, people don’t pay taxes simply because they can’t afford to. They may make a mistake on your taxes or forget to pay the IRS. In other cases, taxpayers may intentionally avoid taxes. Regardless of the reasons, there can be several consequences of not paying taxes.
If you fail to file your taxes, you may be subject to a "Failure to File" fee. You may even have to pay a "Failure to Pay" fee if you pay your taxes late. If your tax bill accumulates, the IRS can seize your property and assets or take money from your paycheck through wage garnishment.
If the IRS suspects tax fraud or tax evasion, it may pursue criminal tax charges that may result in jail time in extreme cases.
What Are the Legal Penalties For Not Paying Your Taxes?
When you fail to pay your taxes, the IRS may charge you legal penalties and fines. Here’s what you can expect when you don’t pay taxes:
- If you do not file taxes before the due date, the IRS will charge a "Failure to File" penalty. This fee is 5% of unpaid taxes for every month your tax return is late and is capped at 25% of the unpaid taxes.
- If you don’t pay your taxes before the due date, the IRS can charge a "Failure to Pay" penalty, which is 0.5% of the unpaid taxes for each month you don’t pay your taxes. The penalty is capped at 25% of unpaid taxes.
- If you still don’t pay your taxes, there may be a tax lien against you. This can come in the form of wage garnishment, asset, and bank account seizure, and selling your property to recover money.
- In extreme cases, the IRS may file criminal charges for tax evasion. Trying to avoid paying the taxes you owe deliberately can lead to 3-5 years of jail time.
Can You Go To Jail for not paying taxes?
Whether you can go to jail for not paying income taxes will depend on the circumstances and reasons for failing to pay. Here’s what you can and cannot go to jail for.
What Can You Go to Jail For?
Criminal prosecution is reserved for tax fraud and tax evasion charges, which are serious crimes. Here’s a deeper look at circumstances under which you may go to jail.
- Intentionally not paying taxes you owe.
- Knowingly filing a false return.
- Intentionally and knowingly deceiving the IRS to avoid having your taxes assessed is known as tax evasion.
- Falsifying documents or providing false statements.
- Underreporting income.
- Concealing assets or money.
- A history of not filing taxes.
- Ignoring IRS notices and not cooperating with IRS employees.
- Helping others evade taxes.
What Can’t You Go to Jail For?
There are several lesser tax law violations for which you may have to pay penalties, but you won’t go to jail.
- Tax filing mistakes due to negligence.
- Not having enough money to pay your taxes.
- Not filing taxes when you aren’t required to.
- Using legal strategies with the help of a CPA to minimize the amount of tax you need to pay. Tax avoidance is legal, but tax evasion is not.
Civil vs Criminal Penalties
Most tax liability issues are not criminal. For example, if you made an honest mistake in filing taxes, or if the IRS audited you and found out that you owe money, there may be a civil judgment against you. You cannot go to jail for civil charges. Civil tax penalties are less severe compared to criminal penalties, but you may still have to pay up to $75,000 in civil penalties. You should still consult a tax professional if you’re dealing with tax issues. These professionals have a deep understanding of the tax code and can help you.
If the federal government convicts you for tax evasion or tax fraud, it may impose fraud penalties, which can be quite severe. You may pay $100,000 in fines and get a prison sentence of up to five years. If there has been a criminal investigation against you, consult with a tax attorney for criminal defense.
Examples of People Who Went to Jail for Tax Crimes
Cases of prison sentences for tax crimes are not rare. Here are a few examples of people who have gone to jail for committing tax fraud:
- A couple in North Carolina failed to file their taxes and pay their employment tax. They received a sentence of $2.4 million in restitution, five years in jail, and three years of supervised release.
- An Ohio man who conspired to commit fraud had to pay $1 million in restitution. He was also sentenced to one year in prison and three years of supervised release.
- A Texas man who did not file his taxes for six years had to pay $164,032 in restitution and was sentenced to one year in jail and one year of supervised release.
How To Avoid Going to Jail
While the IRS only pursues criminal charges in extreme cases, it’s best to learn what you can do to avoid fines, penalties, and criminal prosecution.
- Always file tax returns on time.
- Pay the taxes you owe before the due date.
- Comply with state and federal tax laws.
- If you can’t afford to pay your taxes, be proactive and seek professional help.
- Provide accurate information to the IRS about your investments and assets.
- Explore options like tax debt settlement, forgiveness programs, and installment agreements.
What To Do If You Can’t Pay Taxes
“If you get behind or owe more than you thought on your taxes, don't put off talking to the IRS,” cautions Teresa Dodson, debt expert and founder of Greenbacks Consulting. “They are very easy to work with in setting up a payment plan that works for you,” Dodson adds.
Here are a few of the options you can explore if you owe money on your taxes:
You can use debt consolidation loans to combine all of your debts, including tax debt, into a single monthly payment. If you have a good credit score, you can get a loan at a low-interest rate. Use the proceeds from the loan to pay off your tax obligations. You can also negotiate to reduce your debt or resolve some of your other debts to free up money that you can use to pay the taxes you owe.
Offer In Compromise
You can settle your tax debt for less than you owe through an offer in compromise. This option is usually available only to taxpayers facing financial hardship. The qualification criteria can be quite stringent, and you’ll need to provide detailed information about your finances to the IRS to qualify.
If you can’t afford to pay off your entire tax debt at once, check to see if you can set up an IRS installment plan. You’ll be able to pay installments each month until you pay off your debt in full. You’ll still have to pay interest and "Failure to Pay" penalties while you are on the payment plan, but the IRS will reduce the penalty to 0.25% of the outstanding balance.
The Bottom Line on Tax Debt and Jail Time
Paying your taxes on time is important, but if you’ve made an unintentional mistake or cannot afford to pay taxes, there are several ways to rectify it. Consult a tax attorney if you’re dealing with tax problems. The IRS will only pursue criminal charges and send you to jail if you are intentionally committing tax fraud. As long as you are proactive and are trying to pay off your back taxes retroactively, along with your fines, you shouldn’t have to worry about going to jail.