What Are the Penalties if You Cash Your Paychecks and Don’t Pay Taxes?

Posted in News, Offshore Account Update on April 28, 2023 | Share

If you live and work in the United States, you have an obligation to pay income taxes to the federal government. There are no exceptions, and the Internal Revenue Service (IRS) aggressively enforces all citizens’ and residents’ tax payment obligations.

So, what happens if you cash your paychecks and don’t pay the federal income taxes you owe?

The first thing to know is that the IRS will find out. While cashing your paychecks instead of putting them in a bank account might seem like an anonymous way to avoid the IRS, your employer will be reporting your income to the agency. If your employer reports your income and you do not, you are almost certain to get a letter from the IRS.

Penalties for Failure to Pay Income Tax to the IRS

Under the Internal Revenue Code, residents and citizens who fail to report their income and/or fail to pay the taxes they owe begin to accrue penalties immediately. If you don’t file a tax return, these penalties will be calculated as 0.5 percent of the tax you owe for each month that you don’t pay. So, if you don’t pay for two months, you will owe a one-percent penalty. If you don’t pay for a year, the penalty will increase to six percent.

But, there is a cap on the IRS’ failure-to-pay penalty. Regardless of how long your federal income taxes are past due, the maximum penalty is 25 percent of the amount owed. So, if you owe $10,000 in taxes and you don’t pay what you owe, the penalty will be $2,500 whether you wait five years, 10 years or longer.

Don’t forget, however, that the IRS also charges interest on unpaid taxes and failure-to-pay penalties—and there is a separate penalty for failure to file. This means that the longer you owe federal income taxes, the more you will need to pay to satisfy your federal debt. Keep in mind that most states have income tax laws as well. If you owe federal and state income taxes, then failure to pay could lead to penalties and interest at the federal and state levels. Penalties and interest rates vary by state; but, in any case, getting behind on both your federal taxes and your state taxes can prove to be a very expensive mistake.

Criminal Prosecution for Nonpayment of Income Taxes

The final factor to consider when you cash your paychecks is that nonpayment of taxes can also lead to criminal prosecution in some cases. If the IRS determines that you have intentionally attempted to evade your tax obligations, you could face criminal tax fraud or tax evasion charges that carry substantial fines and prison time. Facing criminal tax charges can have immigration consequences for non-citizens as well.

Discuss Your Options with a Washington, D.C. Tax Lawyer Today

If you have cashed paychecks without reporting your income or paying the taxes you owe, you should speak with a lawyer before the IRS contacts you. To discuss your options with tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group in Washington D.C., call 202-349-4033, email or request a confidential consultation online now.

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