Does Not Paying Taxes Affect Your Credit?

While not paying your taxes won’t directly impact your credit score, it can have significant indirect effects on your financial health and creditworthiness. The IRS can take various actions to collect unpaid taxes, which can affect your ability to manage your finances and qualify for new credit accounts.

Consequences of Not Paying Taxes or Paying Them Late

If you fail to pay your taxes on time, the IRS may impose penalties, interest, and take other actions to collect the debt. Here are some potential consequences:

• Failure to Pay Penalty: The IRS may charge a 0.5% penalty on the unpaid amount each month, plus interest. If you start a payment plan, the penalty may be reduced to 0.25% per month.
• Tax Liens: The IRS can place a lien on your property, which can affect your ability to sell or refinance it.
• Collection Calls: The IRS may hire private debt collectors to contact you for payment.
• Tax Levies: The IRS can take money from your paycheck, bank accounts, or other assets.
• Passport Restrictions: If you owe more than $62,000, the IRS may notify the State Department, which could revoke your passport.
• Future Tax Refunds: The IRS can withhold future tax refunds to apply them to your unpaid taxes.

Consequences of Not Filing Your Tax Return

Failing to file your tax return on time can lead to additional penalties and consequences:

• Failure to File Penalty: This penalty is 5% of the unpaid tax amount each month, up to a maximum of 25%.
• Loss of Health Care Tax Credits: You may need to file a tax return to claim health care tax credits.
• Loss of Medicaid Coverage: Self-employed individuals may need their most recent tax return to prove eligibility for Medicaid.

What to Do if You Can’t Afford to Pay Taxes

If you can’t afford to pay your taxes, there are several options available:

• Set Up a Payment Plan: You can apply for a payment plan with the IRS, which allows you to pay off your tax bill over time.
• Request Penalty Relief: You may qualify for relief that waives or reduces penalties and interest.
• Apply for an Offer in Compromise: This allows you to settle your tax debt for less than the full amount owed.
• Consider Financing Options: Taking out a loan or using a credit card to pay your taxes may be an option, but it could be more expensive than an IRS installment plan.

Don’t Shy Away From Your Taxes

Even if you can’t afford to pay your taxes, it’s important to take action. Filing your tax return on time can help you avoid additional penalties and interest. There are various options available to help you manage your tax debt over time.

If you have more questions or need assistance, consider contacting an accountant or reaching out to the Taxpayer Advocate Service, an independent organization within the IRS that helps taxpayers.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the importance of managing your finances effectively. If you need assistance with mortgage services, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate your financial journey and find the best solutions for your needs.