Taxes are a necessary part of life in the modern world. While paying taxes isn't fun, the consequences for not paying taxes are even worse. The following guide explores the world of tax liens.
Federal Tax Lien
Almost half the people in the United States don't pay federal taxes. If your income is below $30,000 a year, it's likely that you won't be required to pay any federal taxes. However, if you are required to pay federal taxes, but fail to pay those taxes on time, the consequences can be dire.
A failure to pay federal taxes is more severe than a failure to pay state taxes. Since federal taxes are managed by the Internal Revenue Service (IRS), those who don't pay their taxes in full will go through a series of intense collection procedures.
It's essential to file your taxes on time. Even if you can't pay your taxes in full, you should submit your tax documents by April 15th. In many cases, the government will charge a significantly higher interest rate on unpaid taxes that are unfiled than they do for unpaid taxes that were filed on time.
For the first few months after non-receipt of a payment, the IRS will send multiple notices by mail. These notices are usually nonthreatening in tone. The IRS will gently remind individuals that they continue to owe taxes and that interest will be accruing during this period.
After six months, collection efforts become more aggressive. The IRS typically sues an individual for unpaid taxes. However, this is dependent on the amount that one owes. For tax debts of less than $1,000, the IRS will usually employ a lawsuit only as a last resort. For tax debts above this amount, the IRS will sue an individual much more quickly.
In many cases, a lien will be placed on an individual's home an automobile. If an individual attempts to sell either of these, part of the money earned from the transaction will go towards the tax debt. If the lien exceeds the value of the property to be sold, an individual will receive nothing from the proceeds of its sale.
The IRS may also place a levy on an individual's bank account. Under a bank account levy, funds will be automatically withdrawn from an account whenever they are available. The IRS has a legal right to drain an individual's bank account if he or she is delinquent on taxes. This can cause severe financial hardship for many people. Unfortunately, the IRS does not consider personal financial hardship to be a excuse for tax delinquency.
If an individual fails to pay federal taxes for a long enough time, he or she will go to jail. The IRS can sentence jail time of up to 10 years for a failure to pay taxes. However, this is a last resort. The IRS usually doesn't pursue jail time unless a person is several years delinquent on his or her federal taxes.
State Tax Lien
States use a variety of different methods to recover unpaid taxes. However, all states use different methods. In many cases, states will use private debt collection agencies in an attempt to collect unpaid taxes. Contact your state tax agency for more information.
