Penalties for Cashing Your Paycheck and Not Paying Taxes

When you get a paycheck, you owe a portion of your income to the federal government. The amount you have to pay depends on how much you make, your family circumstances and a variety of other factors. But, generally speaking, if you earn a living in the United States, you must pay taxes to the Internal Revenue Service (IRS).

If you fail to pay taxes to the IRS—or even if you fail to file an annual income tax return—you can face steep penalties. In some cases, nonpayment of federal taxes can even lead to criminal charges.

Understanding the IRS’ Failure-to-File and Failure-to-Pay Penalties

The IRS imposes separate penalties for failure to file a federal income tax return and failure to pay federal income taxes. The IRS’ failure-to-file penalties are:

• Five percent of the unpaid taxes owed for each month that the taxpayer’s return is late, up to a maximum penalty of 25 percent.
• The IRS charges a minimum failure-to-file penalty of $435 (for tax years 2020, 2021 and 2022) or 100% of the tax owed, whichever is less.

The IRS’ failure-to-pay penalties are:

• 0.5 percent of the unpaid taxes owed for each month they remain unpaid, up to a maximum penalty of 25 percent.
• If you receive a Notice of Intent to Levy from the IRS, the monthly penalty increases to one percent per month.

If you owe failure-to-file and failure-to-pay penalties, the penalties will be combined for the first five months. In other words, you will pay a total penalty of five percent during this period, and then you will continue to owe the 0.5 percent monthly penalty for as long as your federal income taxes remain unpaid.

Understanding the Criminal Penalties for Federal Tax Fraud and Tax Evasion

If the IRS determines that you have intentionally cashed your paychecks in an effort to avoid income tax liability, you could face criminal penalties in addition to the civil penalties we just discussed. Under the federal tax evasion statute, willfully attempting to evade federal income tax is a criminal offense that carries up to a $100,000 fine and five years of federal imprisonment.

Don’t Forget About the State

Along with federal income taxes, Virginia residents must pay state income taxes as well. Failure to pay these taxes can also lead to penalties. In Virginia, the late filing and late payment penalties are both six percent per month, up to a maximum penalty of 30 percent of the outstanding taxes due.

Get Help from an Experienced Virginia Tax Lawyer  

If you have concerns about facing federal or state tax penalties in Virginia, it is strongly in your best interests to speak with an experienced tax lawyer as soon as possible. Waiting to take action could lead to a tax audit or criminal tax evasion investigation. To discuss your situation with Virginia tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group in confidence, call 703-752-3752, email ket@thornlawgroup.com or request a consultation online today.