While having any debt can stress you out, owing money to the IRS can become a nightmare if you don’t understand the potential consequences and fail to address your tax debt quickly.
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One of the better outcomes could be just paying interest and penalties and making monthly payments until you clear your balance. But ignoring the IRS completely or paying just what you feel like could lead to various financial losses and even problems when traveling abroad.
Here are five scary things the IRS can do if you owe tax debt and some ways to avoid them.
In most cases, the IRS contacts you directly about settling tax debts, but it sometimes turns to private debt collection agencies. This might happen if the IRS has had issues finding you, you’ve failed to respond to its letters within a year or the unpaid tax debt is a few years old.
Having debt collectors calling you can be frustrating enough, but you might also miss out on learning about more manageable ways to handle your tax bill. The Taxpayer Advocate Service noted that private agencies can either work out installment agreements or ask you to pay in full. This is limiting if you’re interested in hardship options or an offer in compromise.
Be proactive about responding to the IRS so you can address the debt without another party involved.
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Paycheck garnishment is a scary step the IRS may take when it decides to pursue a levy against your earnings until you’ve paid off your overdue taxes. However, this wouldn’t happen until you’ve gotten multiple notices and warnings and taken no available action to handle the tax bill.
When a wage levy happens, your employer must deduct a certain amount from each paycheck, and that amount depends on factors like your deductions, tax debt balance and dependents. For example, the 2025 IRS Publication 1494 showed that just $576.92 of each biweekly paycheck would be exempt from garnishment for a single taxpayer without dependents.
Steps like filing for bankruptcy, getting on an installment plan or showing that the IRS didn’t follow certain rules could stop wage garnishments.
Your bank account funds aren’t safe if you’ve neglected to handle your unpaid taxes. The IRS can decide to levy your account, which first involves a 21-day period when you can’t access that money. Plus, you might find a surprise $100 processing fee on your bank statement.
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