No, you can not go to jail for not paying taxes or for simple tax mistakes. However, you can end up in prison for major tax fraud offenses. Moreover, if you did not file taxes for a long time then you will end up paying a hefty fine.
Wondering whether you can go to jail for not filing taxes?
Well, as tax laws are difficult to understand and IRS is remarkably formidable, so it’s a pretty common question. But what’s the answer?
You can possibly be sent to jail for not paying taxes. But only in extreme situations. So, what are they?
In this article, I am going to simply explain in which situations can you go to jail for not filing taxes. other penalties for not paying taxes, how many years can you go without filing taxes, and all the related questions. So, stick here till the end.
Can You Go To Jail For Not Filing Taxes?
Yes, you can go to jail for not filing taxes. But only in extreme tax fraud scenarios. Because most tax avoidance cases are civil offenses in the US, not criminal ones. So, most of the people who do not file taxes end up paying a fine or interest payment.
So, you won’t be sent to jail for minor tax mistakes and simply missed filing taxes. Here are some other instances when you won’t face jail time for not filing taxes
- Not paying taxes because you don’t have money to pay.
- Not being able to pay tax for a year only.
- Minor counting or other errors while filing taxes.
- Using Write-offs while paying taxes.
- If you don’t fall under the tax-paying category.
Here you can find out who does not fall under the tax paying category.
Moreover, according to the IRS Internal Revenue Manual
“Avoidance of tax is a civil offence. As a result, Regular Americans have the right to reduce, avoid, or minimize their taxes only by following the laws.”
So, you can even legally avoid taxes and not go to jail. But it needs tax expert support and years of planning.
Moreover, if you don’t have the money to pay taxes or you have missed more tax payments than you can afford to pay then you can apply for the IRS offer in compromise. But you must be eligible for this.
If you have property taxes due then check out our article on can someone take your property by paying taxes?
In Which Situations Can You Go To Jail For Not Paying Taxes?
Though most of the people who do not pay taxes do not end up in jail. But jail is still a possibility. Here are some situations you can end up in jail for not paying taxes
1. Tax Fraud
Tax fraud is misinterpreting or hiding your financial information to reduce or even avoid paying taxes. No matter how small the amount is, it can be considered a criminal offense.
The IRS does not like false information and takes tax fraud seriously. In tax fraud cases, you can be punished with a hefty fine and jail time both.
2. Failure To File a Tax Return For Several Years
If you purposefully do not file taxes for several years then you can also end up in jail. Though IRS considers tax avoidance. But only by legal means.
So, jail time is possible if you do not file tax at all for several years.
3. Tax Evasion
Tax evasion is not mentioning or hiding income or assets to avoid paying taxes. With the GIG economy rising it is a common practice. It is a serious offense too and you can end up in jail for it.
Moreover, helping someone evade taxes can also make you end up in jail.
Penalty For Not Paying Taxes
Actually, it depends on your situation. However, according to the IRS website
- If you don’t pay tax at all then they will consider it as a Failure to Pay. The Penalty for this is 0.5% of your unpaid taxes for each unpaid month. However, it’s capped at 25%.
- If you don’t file tax then they will consider it as a Failure to File. The Failure to File Penalty is 5% of your entire unpaid taxes for each unpaid month. However, it’s capped at 25%.
But what about tax evasion or tax fraud?
”If you are accused of tax evasion or tax fraud by the IRS and the acquisition is proved in court, then you can end up with a maximum fine of $100,000 and a five-year prison term.”
However, the average jail time for tax fraud is around 17 months to 2 years.
But how long does it take the IRS to investigate tax evasion?
How Long Does It Take To Investigate Tax Evasion?
Usually, it takes 1-2 years to investigate a Tax evasion case. However, in special circumstances or high-profile cases, the time is a lot less.
Normally, tax evasion cases are seriously considered no matter how small the amount is. So, it’s better if you are true to the IRS. Because not paying taxes is a civil offense but lying to the IRS is a criminal one. So, if you lie you will face an audit and end up either paying a fine or jail time.
Now let’s have a look at how many years you can avoid filing taxes.
How Many Years Can You Go Without Filing Taxes?
You can go 2 years without filing taxes. Moreover, if you do not file your income tax for 4 years the IRS will sue you and take you to court.
However, you will face penalties and interest each year on the money you owe. Check out the IRS website for the penalty and interest rates. Furthermore, there is a 10-year collection period for each year of tax. So, you can not get away without filing or paying tax even after 10 years.
If you want to know about filing W2 then check our article on filing W2 form.
What Happens If You Don’t File Taxes For 2 Years?
If you don’t file taxes for 2 years, the IRS will fine you with a Failure to File Penalty. As a result, there will be a penalty and interest on the money you owe. The interest will keep rising until it reaches 25%.
So, it’s better just to file every year and pay in smaller sums or you might end up in tax debt.
What Happens If You Don’t File Taxes For 3 Years?
If you fail to file taxes for 3 years in a row, the IRS will keep your refund money permanently. Moreover, if there is any refund money from earlier years that will be used to pay your unpaid balance.
But in case there is no refund left the tax money you owe will start to grow because of the penalties and interests.
Well, we have learned about federal taxes. But what about state taxes?
Can You Go To Jail For Not Paying State Taxes?
Yes, you can go to jail only if you have violated state tax law and participated in tax fraud. For not paying state taxes you will most likely end up with a fine.
Though different states have different laws regarding this and 8 states have separate no income tax at all. But the law is somehow similar in all states.
Filing taxes is a civic duty and avoiding it might not send you to jail. But it will definitely make your life difficult. So, you are advised to file taxes on time each year.
Lastly, for any tax-related issue, it’s better to consult with a CPA or Tax advisor.
That’s it for now. Have a great day!