Can You Go to Jail for Not Paying Taxes?

Many people dread the paperwork that comes with filing a federal income tax return — so much so that they avoid filing at all. But can you go to jail for not paying taxes?

In some cases, yes — but you won’t face jail time simply for missing a deadline or not being able to pay the taxes you owe.

Below, we’ll look at what constitutes criminal activity in U.S. tax law and discuss strategies to help pay taxes without worrying about spending time behind bars.

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What the IRS can send you to jail for

The IRS reserves criminal prosecution for people who actually commit tax fraud or tax evasion. These are serious criminal offenses, so it’s essential to understand what activities can result in jail time if prosecuted by the IRS.

Tax fraud

Tax fraud is an umbrella term encompassing many different tax law violations. When you intentionally fail to pay the taxes you owe, you’re defrauding the government of the money it’s owed. Tax fraud can also occur when you knowingly file a false return.

In tax fraud cases, the IRS has to prove that you failed to pay the tax you owed and that the failure was intentional.

Tax evasion

Tax evasion is one crime that falls under the tax fraud umbrella. It involves knowingly and intentionally deceiving the IRS to avoid having tax assessed or paying the tax you owe.

Some examples of tax evasion include:

• Transferring assets to someone else to prevent the IRS from determining your true tax liability
• Underreporting income
• Claiming false deductions or credits
• Falsifying documents
• Concealing money or assets that you could use to pay the tax you owe

Failure to file

What happens if you don’t file taxes? Failing to file a tax return because you forgot about the deadline, had a death in the family or were dealing with another kind of hardship isn’t considered a criminal offense, but it can result in penalties and interest.

However, the consequences are more serious if the IRS sees any indicators of potential fraud.

Some indicators of fraud include:

• A history of not filing
• Ignoring IRS notices or failing to cooperate with IRS agents or employees
• Attempting to conceal assets
• Understating income
• Providing incomplete or misleading information to a tax preparer
• Failing to maintain adequate documentation
• Falsifying documents
• Offering inconsistent or implausible explanations for your failure to file

If the IRS finds indicators of fraud, they can escalate the charges to a misdemeanor or felony, which carry steeper penalties.

A felony tax evasion conviction can result in up to five years in prison and up to $250,000 in fines ($500,000 for corporations).

Helping someone evade their taxes

When you help someone else evade taxes, you become an accessory to their crime. The federal government can hold you responsible, just as if you’d committed the crime yourself.

• Examples of helping someone evade taxes include:
• Falsifying documents on their behalf
• Accepting transferred assets to help them to avoid taxes
• Providing false information to the IRS about their income or expenses

What the IRS can’t send you to jail for

Tax fraud and evasion are serious offenses that can lead to criminal prosecution. However, there are many lesser violations of tax law for which the IRS doesn’t pursue criminal charges.

Tax filing mistakes

Making a mistake on your tax return typically won’t result in criminal charges, but it can still lead to hefty penalties and interest charges. The penalties depend on the nature of the mistake and whether you made it intentionally or due to negligence.

If the IRS discovers a mistake on your return, they’ll usually send a notice of deficiency. This notice outlines the proposed changes to your return and the amount of tax, penalties and interest you owe.

If you substantially understate your tax liability — by 10% or more of the tax you actually owe or $5,000, whichever is greater — the IRS can assess an Accuracy-Related Penalty. This penalty is 20% of the underreported amount. This penalty is on top of interest charges.

Being unable to afford to pay your tax bill

Being unable to afford to pay your tax bill typically doesn’t rise to the level of criminal charges, but the IRS can assess late payment penalties and interest charges.

The penalties and interest assessed depend on the amount owed and how long it takes you to pay it off.

If you fail to pay the amount you owe by the filing deadline — usually April 15 — the IRS can charge a Failure to Pay Penalty of 0.5% of the unpaid tax each month or part of a month that the tax is outstanding. The IRS caps the Failure to Pay Penalty at 25% of your unpaid taxes. The IRS also charges interest on the unpaid balance and interest on penalties. Interest rates are set by the federal government each quarter; as of Q2 2023, the interest rate on underpayments is 7%.

Tax avoidance

The IRS makes an important distinction between tax avoidance — using perfectly legal tax planning strategies to minimize the amount of tax you owe — and tax evasion. Tax avoidance is legal, while tax evasion is not.

For example, if you own a business, you can take advantage of tax deductions that reduce or even eliminate your tax bill. As long as these deductions are valid under the tax code, you don’t have to fear tax evasion charges.

Failure to file if you aren’t required to

In certain situations, you might not be required to file a tax return. For example, you may not have to file if your income falls below a certain threshold. The income threshold varies depending on your filing status and age, but for the 2023 filing season, most people must file if their gross income is over $12,950 if single and $25,900 if married and filing a joint return.

Check out Table 1 in IRS Publication 501 or use the IRS’s Do I Need to File a Tax Return? interactive tool if you need help determining whether you need to file.

It’s also important to note that if you’re self-employed, you may be required to file a tax return even if your income falls below the above-mentioned threshold. Anyone with net earnings from self-employment of at least $400 must file a return and pay self-employment taxes.
 

What to do if you can’t pay your taxes

If you can’t pay your taxes, there are a few options available that can keep you out of hot water with the IRS.

Be proactive

Contact the IRS right away at 800-829-1040 (or 800-829-4933 if you’re calling about a business return) if you don’t have enough money to pay your taxes or can’t file on time.

As long as you’re proactive, the IRS will usually work with you to make arrangements and won’t start aggressive collection efforts.

Government forgiveness programs

The IRS offers several options for people who can’t afford to pay their tax bill in full. An IRS representative or tax professional can help you determine which option is best for you and may even help you apply.

• Payment plans: An IRS installment plan allows you to pay off your tax debts over time rather than in one lump sum. A few different types of installment plans are available depending on the amount owed and how quickly you can pay off the balance.
• Offer in Compromise: An offer in compromise allows you to settle your tax debt for less than the full amount owed. However, this is typically only available to people with limited financial resources or extreme financial hardship. The application process is lengthy and requires submitting detailed financial information to the IRS, so getting help from your tax attorney or accountant is a good idea.
• Tax penalty relief: If you missed filing your return or paying your tax bill by the deadline due to circumstances beyond your control — such as a natural disaster, serious illness, death of an immediate family member or another hardship — the IRS might agree to waive your penalties. You can request penalty relief by calling the IRS or using Form 843. You may need to provide supporting documentation, such as copies of medical bills, insurance documents or proof of job loss.

Use a personal loan

You may be able to use a personal loan to pay your tax debt. When using a personal loan to pay off tax debt, you take out a loan from a bank, credit union or online lender at a fixed interest rate. This can be a good option as long as the interest rate on the personal loan is lower than the penalties and interest charged on your tax debt.

Credit counseling

Credit counseling can be a valuable tool for anyone struggling to pay their debts. Credit counselors advise and assist individuals in managing their finances, including creating a budget and negotiating credit card or loan balances.

You can find a list of approved credit counseling agencies on the U.S. Department of Justice’s website.