Most Common IRS Enforcements If You Owe
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Everywhere you look, regular consumers are struggling to pay their bills, racking up debt and falling behind on their financial goals.
One problem many consumers encounter is owing money to the Internal Revenue Service (IRS). If you file your taxes and discover that you actually owe money – whether it’s a small sum or a hefty amount – to the IRS, you may feel anxious, overwhelmed and scared.
If you’re worried about owing money to the IRS, read below to see what can happen if you owe the IRS money and don’t pay up.
What is Tax Debt?
Tax debt is money owed to the IRS. Sometimes tax debt happens if you accidentally fail to pay your full taxes. In other cases, people may nefariously deliberately underpay taxes.
You can often resolve tax debt fairly quickly. For example, if you file your taxes and realize you owe a balance to the IRS, you can simply write a check or have the money transferred directly from your bank account.
If you can’t afford to pay the IRS back in full right away, you have other repayment options. You can choose between a short- or long-term repayment plan. The short-term loan option gives you six months to pay back the debt, while the long-term option gives you more than six months to repay the funds. The IRS may charge a fee to set up the payment plans.
Don’t Miss Out: The IRS writes off millions in tax debts.
What Happens if You Avoid the IRS
Wage Garnishment
When you have tax debt, the IRS is effectively your lender. This means that they can go after your paycheck to recoup any money you owe them. This is known as wage garnishment.
In most cases of wage garnishment, the lender has to sue you in court to be able to garnish your wages. However, the IRS doesn’t have to go to court. They can simply automatically start taking a portion of your paycheck.
There is a limit though to how much they can take. The amount that will be garnished depends on your income, the number of dependents claimed on your taxes and more factors.
Wage garnishments can also apply to government benefits like Social Security.
Help With Your Debt
Levies
In this context, a levy is when the IRS can seize your assets to cover your tax debts. This can include money in a bank or investment account, the cash value of a life insurance policy and more.
They can also take physical property and sell it, a similar process to bank foreclosure.
Tax Liens
A lien is an official notice that a lender, business or organization has a legal right to your property. For example, if you own your home, the government can put a lien on it. When you go to sell your home, the IRS can take their share before you receive your profit.
The IRS can put a tax lien on a house, car, a business and more. A lien is not permanent. It can be removed once you have paid your balance.
A lien may also hurt your ability to take out another loan, especially a mortgage or other major loan.
Seize a Tax Refund
Here’s a common scenario. Let’s say you filed taxes last year and found out you owed money to the IRS, but did not pay your bill.
If you file your taxes this year and are technically owed a refund, the IRS can take your refund to pay off your existing balance.
Penalties
When you don’t pay your share of taxes by the due date, you may be assessed a penalty on the unpaid amount. The penalty amount will vary depending on when you end up paying your taxes. In general, the sooner you pay off the bill, the less you will owe.
You may also be assessed a penalty if you do not file your tax return by the due date, if you did not file for an extension. However, even if you file an extension, you may still owe a penalty if you underpaid your taxes.
Take Control: Find out if you qualify for debt relief.
What if You Can’t Afford to Pay Off the IRS.
Can You Settle Your Tax Debt With the IRS?
When you owe money to the IRS, they may be willing to work with you.
If you’re living in poverty and can’t afford to pay, you may qualify for an “offer in compromise,” meaning you can pay less than you owe.
This offer is usually only available to consumers who legitimately do not have the funds to pay back the IRS. Tax Relief firms manage these situations on behalf of their clients.
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Why You Should Pay the IRS Back
When it comes to organizations you can possibly owe money to, the IRS is one of the best – and also the worst.
On the one hand, they have more recourse than traditional lenders if you owe them money. It’s much easier for them to seize your assets and property than it is for other lenders.
However, they can also be fairly reasonable if you communicate with them. Their interest rates can be lower than what you may find with a credit card – and definitely lower than what you would pay with a title or payday loan.
Plus, IRS tax debt does not appear on your credit report, unlike other loans. And, in some cases, you may even be able to negotiate the debt to pay less than what you owe.
If you’re nervous about approaching the IRS, you can meet with a tax attorney, enrolled agent or CPA to discuss your options.
The key is not to ignore any letters or notifications you receive from the IRS. The IRS will be fairly reasonable in trying to communicate with you before instituting a wage garnishment, lien or other enforcement.
