I’m 43 years old and earn $62,000 a year because it’s such a tense trivia for freelancers, so there’s no tax payment – can I fix this without going to jail?
I can assume you’re awake at night and wonder if you’re in jail for not paying taxes – if it’s too late.
One might say that the pressure of not paying taxes (and potential consequences) is much more stressful than the chores of actually paying taxes. But you won’t be alone. According to a 2024 NextDoor survey, 64% of Americans say the tax season puts stress on their lives.
Not filing taxes can have some serious consequences. On the one hand, the Internal Revenue Service (IRS) will begin to charge fines that accumulate over time. The fine includes “failure to apply” fines (5% of monthly unpaid taxes) and “no” fines (0.5%), or 5% of both fines. Each penalty is up to 25% of the total tax payable.
Most importantly, although the tax period begins from the tax period, interest will still accumulate. As of the first quarter of 2025, the interest rate was 7%. Interest on the full amount from taxes you owe to fines and unpaid interest. This starts to add up – fast. Over time, your tax debt will increase.
If you don’t pay taxes, the IRS can prepare a tax return for you, which is called alternative returns (SFR). This is not ideal as it may not include any tax credits or deductions you are eligible for, which means you may end up paying more taxes. With SFR, you can accept it or choose to supplement your tax return – as well as any tax credits and deductions available.
However, if you ignore it, the IRS may issue insufficient notifications and start the debt collection process. The agency can decorate your salary and retirement account. It can make money from your bank account, or even seize your property and sell it. Any future federal tax refund or your due state income tax refund may also be seized and apply to your federal tax liability. The IRS may file notices of federal tax lien, which will be part of public records and affect your ability to obtain credit.
These are not the only consequences of not submitting. If you do not report your self-employed income, you will not receive credit for Social Security Retirement. This also means you may not be able to get a loan because you don’t have a tax return to prove your income level.
If you are considered intentional tax evasion or tax fraud, you will face criminal prosecution, which may be fined and jail time, but this is unlikely.
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A UPWORK study shows that in 2023, 64 million Americans worked as freelancers, accounting for 38% of the U.S. workforce. Freelancers are considered sole proprietors or performers and are required to report any income and losses through Schedule C (Form 1040).
Traditional employees get a single W-2 form to submit taxes, which makes submitting taxes relatively simple. However, freelancers working with multiple clients end up with many Forms 1099 and 1099-K (if they pay via online services such as PayPal or Venmo).
You can start resolving the tax situation by collecting all documents, including the final return you filed, any letter from the IRS, or any tax documents you receive. You will also need to record your income and business expenses.
It is best to be proactive. If you contact the IRS, you can create a payment plan, but you will need to submit all required returns first. You can also ask the IRS to delay the collection process. If you have a very bad financial situation and are eligible, you can apply for a compromise offer to pay the asking price you owe.
If financially makes sense, you can also consider applying for a personal loan to cover your tax debt.
Since you are dealing with a five-year refund tax, you may want to consider the help of a tax specialist who specializes in self-employed workers. A registered tax agent may spend some money upfront, but can help with taxation and negotiate a solution with the IRS.
Once you have submitted your refund tax and may have a payment plan with the IRS, you will need to do everything you can to stay compliant.
Self-employed workers pay federal and possible state income taxes, as well as a 15.3% self-employed tax, covering social security and health insurance. However, self-employed workers can also require business-related deductions, including telephone and internet services, computer equipment, office fees and business-related travel. Freelancers working from home may also be eligible for the Ministry of Home Affairs deduction.
Once you have sorted out your revenue streams, expenses, deductions, and points over the past five years, you can create documents or spreadsheets (or use software programs) to track future categories. For example, you can create a document that tracks customers, assignments, and revenue for the year. An accounting software program can be a worthwhile investment that can make the process easier.
While freelancers apply every year like everyone else, they also need to make quarterly payments throughout the tax year. By keeping a detailed record of its income and expenses, and paying taxes by putting money aside a range – you will be ready for tax time.
This can also help you estimate how much money you owe for the upcoming tax season, which can greatly relieve you of stress. If you want to further relieve stress – or don’t want to get the hassle of dealing with numbers – you can also work with a bookkeeper or use accounting software to help manage your finances.
This article provides information only and should not be construed as advice. It is without any warranty of any kind.
