This time of year, many people get Cinderella complexes and worry their financial lives will unravel if they don’t pay their tax bill by the stroke of midnight on April 17. But will the IRS really turn your assets into pumpkins if you don’t meet the deadline? Though the timeline varies (things can happen faster or slower, depending on the situation), here’s how tax pros say things often play out.
If you don’t pay your tax bill in full by April 17, the IRS will charge interest on whatever amount is outstanding. The annual interest rate is usually about 5%. The IRS may also sock you with a late-payment penalty of 0.5% per month, with a maximum penalty of 25%.
“You’ll get a letter noting that there’s a balance due,” says Sal Curcuru, a CPA in Farmington Hills, Michigan. You may get more than one letter, and the tone will gradually get more severe, he says.
A levy is the actual seizure of your assets — property, bank accounts, Social Security payments or even your paycheck. Levies can happen quickly, though in practice it often takes a little while to get to this stage, Harris says.
“They can take your car and they can sell it at auction, and they can turn that into cash and apply that to your unpaid tax liability,” he says. “They can go after IRAs, and your homestead here in Florida, and 401(k)s — assets that a lot of other creditors can’t. So, down the road if they do decide to collect, none of the property that you have is necessarily shielded.”
On top of all that, the State Department may not issue or renew your passport, and it might even revoke it.
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