The US Treasury will probably be the friendliest creditor you encounter in life. Also, if you timely file your tax return, your effective interest rate will be no greater than the current “federal short-term rate” + 0.5 % (for 50 months). If you have timely filed your federal return and have not committed fraud, there is a good chance that your current interest rate on your unpaid tax liability will be 4.5% (current rate + 0.5% late payment penalty). Now compare that with the national average credit card APR, ~14.39%.
If, however, you haven’t filed a return, the your interest rate jumps to 9% for every month you have not filed (for 5 months, then your rate falls back to 4.5%).
So don’t be afraid to file just because you can’t pay! You could fall through the cracks and never be bothered by the IRS for not filing, but it’s not worth the risk. If you’re not afraid to rack up consumer debt and pay variable interest (15% -25%), you shouldn’t be afraid of not paying your tax liability. Also, you risk being penalized for fraud. Your interest rate would then jump to 19.5% (for 5 months).
This article was not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties.