Check Cashing: Are There Penalties if You Cash Your Paychecks and Fail to Pay Taxes?

When you get paid, you cash your paychecks immediately. You need every dollar to cover your expenses, and you can’t afford to wait a few days for your paychecks to clear. Is this okay? Or are you setting yourself up for problems with the Internal Revenue Service (IRS)?

If You Earn a Living, You Have Obligations to the IRS

In the United States, everyone who earns an income has obligations to the IRS. No matter how much you make, you must report your income annually, and you must pay the federal income taxes you owe.

How will the IRS find out if you don’t report your income or pay your taxes? Most likely, it will find out from your employer. Employers get tax deductions for the wages and salary they pay, and they are required to report all wages and salary to the IRS when they submit their share of employees’ FICA taxes.

So, what happens when the IRS finds out?

Under the Internal Revenue Code, penalties and interest begin to accrue immediately. This means that once your federal tax returns or federal taxes are past due, you already owe more than just the taxes you haven’t paid. Over time, the amount you owe will continue to increase, and your risk of facing an IRS audit or criminal investigation will increase as well.

The Penalties for Cashing Your Paychecks and Not Paying Income Taxes

The penalties for failing to file federal tax returns and failing to pay your federal income taxes can be substantial. Here is some of the key information you need to know:

• Failure to file a federal income tax return carries a penalty equal to five percent of the unpaid taxes you owe for each month that your tax return is late, up to a maximum penalty of 25 percent.
• Failure to pay federal income taxes carries a penalty equal to 0.5 percent of the unpaid taxes you owe for each month they remain unpaid, up to a maximum penalty of 25 percent.
• If you fail to file a federal income tax return and you owe tax, the failure-to-file and failure-to-pay penalties will be combined for the first five months for a total monthly penalty of five percent.
• The minimum failure-to-file penalty is $435 (for the 2020, 2021 and 2022 tax years) or 100 percent of the tax due, whichever is less.
• The IRS also charges interest on all past-due amounts. This includes both past-due taxes and past-due penalties.

Importantly, these are just the civil penalties for failing to meet your federal tax obligations. If the IRS determines that you have intentionally attempted to evade tax by cashing your paychecks, you could face criminal penalties as well. The penalties for criminal tax fraud and tax evasion include substantial fines and federal imprisonment. For non-citizens, criminal prosecution can have immigration consequences as well.

Request a Confidential Consultation with a New Jersey Tax Attorney Right Away

If you need to know how to protect yourself against IRS penalties (and other consequences), we encourage you to contact us for more information. Call 201-842-7696, email ket@thornlawgroup.com or send us a message online to request a confidential consultation with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.