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Can You Go to Jail For Not Filing Taxes?

The Internal Revenue Service (IRS) was established in 1862 to collect taxes and enforce tax laws in the U.S. In its 160 years of existence the IRS has enabled the majority of law-abiding taxpayers to file and pay their taxes. It has made sure to enforce tax laws for the minority that's unwilling to pay their fair share. For an agency that has existed for this long, it's fair to say that they know a thing or two about collecting taxes and enforcing tax laws. The IRS has a workforce of more than 74,000 employees and, as of 2019, a budget of around $11 billion. With such resources available, it's pretty tricky to escape their watchful eye when it comes to paying taxes.

Key Highlights:

Tax evasion is a deliberate attempt to avoid paying taxes unlawfully
Tax fraud is willingly hiding and manipulating information in an attempt to get around IRS tax laws
When you break tax laws, the penalty could be jail time depending on the tax offense

If you do still manage to wilfully conceal your income information and not file or pay the taxes you owe, there could be consequences. And unfortunately, depending on your income scale and the period you have been hiding information and avoiding paying taxes, you can also end up in jail. Although it's rare, going to jail for tax fraud is probably the harshest punishment, since usually the IRS can only fine you for not paying. The jail sentence exists because tax-related frauds are serious offenses in the U.S. and will almost certainly lead to hefty fines. Just to set the record straight, the IRS is not interested in sending you to jail unless you deliberately go out of line and defraud the agency. So, with the IRS, the intent to missing a deadline, reporting incorrect information or not paying taxes matters a lot.

Table of contents

What happens if you don't pay your taxes on time?...Read more

Errors in filing taxes...Read more

Can I go to jail for not filing taxes?...Read more

What could lead to jail time from taxes?...Read more

How to report tax fraud to the IRS?...Read more

What happens if you don't pay your taxes on time?

The IRS has several tax payment deadlines in place, but if you are a W-2 employee, you don't have to care about them because your employer directly deducts tax from your monthly salary. But suppose you are a business owner or have a stake in a company that's a sole proprietorship, partnership, C-Corporation, S-Corporation or an LLC. In that case, you need to ensure that your company submits all the IRS forms and pays all the taxes accurately and promptly. This group has to pay estimated taxes on their own and is also responsible for paying the taxes of their W-2 employees. They can do this by deducting a certain amount from the employee's pay. Like companies, freelancers, self-employed individuals, sole proprietors and independent contractors also need to do their own taxes – both income and 1099 tax. So, let's say that you are a freelancer with multiple sources of income. The companies and clients must send a 1099 form to the IRS, informing all the payments sent to you for your work. You’ll also receive a copy of the 1099 forms. During tax time, you have to pay your quarterly taxes on time. Depending on the number of clients you work for, you can receive multiple 1099 forms from different parties. If you accidentally miss a payment deadline, the IRS will slap you with a failure-to-pay penalty, which is proportional to the amount of taxes owed. But failing to pay is more severe than underpaying quarterly taxes. If you fail to pay before the due date, the IRS will charge you 0.5% of the taxes owed for every month you are late. But, when you don't pay, the IRS will issue a final notice of intent to seize your property ten days after the deadline., You can avoid the IRS penalty if you provide a valid reason for failing to pay on time. Valid reasons include natural disasters in your area, a death in your family or you were in a different country during tax time. Let's say that the IRS somehow realizes that you deliberately missed paying taxes and continue to do so after multiple notices. The IRS has the authority to audit you, and if your numbers don't add up, it could lead to a civil lawsuit. You might have to pay a hefty penalty and any additional legal costs resulting from the case.

Errors in filing taxes

Sometimes, you might realize a mistake or error on your tax return after you’ve already submitted it. Don’t fret. You can use Form 1040-X to make amendments. Some of the amendments you need to make might be because of previous tax credits you forgot to take advantage of.

Can I go to jail for not filing taxes?

Filing taxes is an essential part of the tax collection process, and every U.S. citizen and company must file taxes. The IRS allows you to apply for an extension to your tax return. If you mistakenly miss your filing due date, you'll have to pay the failure-to-file penalty. If the IRS orders an audit and finds foul play to hide or intentionally not pay the taxes owed, it could lead to serious legal consequences. An inquiry into this can also lead to jail time if the IRS decides to take a harsher stance based on the actions. If you fail to file and pay taxes, you'll incur both failure-to-file and failure-to-pay penalties.

Image with text about IRS penalties - failure-to-file maxes out in 5 months, late filing penalty can't exceed 25% of unpaid amount, and failure-to-pay ever stops adding over time. Relevant for taxes, self-employed, 1099, and freelancers.

The combined penalty for failing to file and pay is 5% of the tax owed for every month of the delay. If you don't file beyond the 60 days limit, your penalty will start with a minimum amount of $435 for any tax dues after December 31, 2019, or even 100% of the tax amount on your return file – whichever number is smaller. These penalties only come into play if you file and pay after the due date.

What could lead to jail time from taxes?

There are two particular cases that the IRS takes very seriously. Both of these cases can get you jail time depending on the seriousness of the offenses.

Defrauding the IRS

Let's say that a person or company is paying its self-employment taxes and filing returns, but intentionally manipulating the records to hide income information from the IRS. You might think that only a large sum of money could attract the attention of the IRS, but falsely declaring personal expenses as itemized business deductions could land you in hot water, too. Tax fraud resulting from identity theft or falsified information is also a punishable offense. For identity theft, the federal and state law mandate different punishments, including jail or large fines.

Tax evasion

Tax evasion can be defined as the act of purposely and illegally avoiding paying your taxes by individuals or companies. An example of this would be a taxpaying entity involved in activities where they misreport income. They are deliberately hiding income and manipulating profit and gains to lower their taxable income. This could result in some consequences like… The IRS may decide to make an audit of an account if they suspect you’re involved in tax evasion. If found guilty, you could face harsh punishments, including imprisonment, depending on how long you've been partaking in tax evasion.

How to report tax fraud to the IRS?

You might suspect that someone else is using your identity to defraud the IRS. In this case, you can file Form 211, Application for Award for Original Information, to inform the IRS. You can also report suspected tax fraud to the IRS using Form 3949-A. The IRS will keep your personal information confidential, and you won’t receive a complaint update because of tax return confidentiality under Internal Revenue Code (IRC) 6103.

Adjust For Inflations

The IRS has released its yearly inflation adjustment for the 2024 tax year, aimed to give US taxpayers relief from rising inflation.