What Happens If I Owe Back Taxes?
If you receive a letter from the Internal Revenue Service (IRS) notifying you that you’re behind on your taxes, it can be a nerve-wracking experience. You may want to bury your head in the sand, but in this case, it’s better to take steps forward and work to file back taxes and get on the IRS’ good side. If you find yourself in this boat, take a deep breath and read on.
What are Back Taxes?
If you currently have an outstanding tax bill with the IRS, you owe back taxes. Back taxes refer to any unpaid tax liability that isn’t paid when due.
For example, if you don’t pay up when you file your tax return, interest and penalties will be tacked onto the back taxes you owe. And if you don’t file your tax return and owe money? The penalties can be more severe and add up fast.
For example, the Failure to File penalty starts at 5% of your unpaid taxes for every month that goes by without filing and has a cap of 25%. There’s also a Failure to Pay penalty which is 0.5% of your unpaid taxes every month you don’t make a payment to the IRS, with a cap of 25%.
What Does the IRS do if You Have Back Taxes?
Failure to pay your taxes when they’re due triggers the IRS to start the collection process. You’ll get that dreaded notice outlining how much you owe, including the interest and any penalties, saying it must be paid in full.
Every day that goes by, interest compounds on your tax debt. On top of that, you’ll be charged a late fee penalty each month. As you can imagine, this adds up fast.
As a federal government agency, the IRS can take several actions to help satisfy the outstanding tax debt. This can range from taking future tax refunds or Social Security benefits to wage garnishment and seizing your property.
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If you currently have an outstanding tax bill with the IRS, you owe back taxes. Back taxes refer to any unpaid tax liability that isn’t paid when due.
IRS Tax Debt Payment Options
If you owe back taxes, it may feel like a huge burden. But if you don’t take action, the penalties and interest can make this ordeal even more expensive. The good news is you can get IRS tax debt relief through various programs that the entity offers.
- Short-term payment plan. The IRS offers a short-term payment plan to taxpayers who owe less than $100,000 and can repay the debt within 180 days.
- Long-term payment plan. Taxpayers who owe a total of $50,000 or less may be eligible for a longer-term installment agreement with a repayment term of up to 72 months.
- Offer In compromise. If financial hardship is getting in the way of paying your taxes, you may be able to get IRS tax debt relief through an offer in compromise. Through this program, you may be able to settle your tax debt for less than what you currently owe.
- Delay collections. If you simply can’t afford your tax debt right now and need additional time to come up with the funds, you may be able to delay the collection process. To get started, you may be asked to fill out a Collection Information Statement (Form 433-F), which asks about your financial status. Delaying collections doesn’t wipe out your tax debt and interest and penalties will continue to accrue.
Using one of these options can help you create a plan to handle your back taxes. Be aware that there may be fees associated with some options, such as long-term payment plans and offer in compromise. If you’re considered low-income, fees may be lowered or waived.
If you can afford to throw money at the problem and pay in full, do so to avoid paying more than you need to.
For those who need assistance with getting IRS tax debt relief or have complex issues, consider working with a company or vetted tax lawyer who may be able to help.
Help With Your Debt
Does Tax Debt Expire?
If you’re dealing with back taxes and feel overwhelmed you may wonder “Does tax debt expire?” According to the IRS, the agency has a period of 10 years to collect the taxes which refers to the Collection Statute Expiration Date (CSED).
While it may seem tempting to wait it out, you don’t want your financial life on hold for a decade. Consider the options above to create a plan to pay your back taxes.
Companies to Help File Back Taxes
If the burden of back taxes is weighing on you, consider getting support from a trusted company that can help. While it can feel overwhelming navigating the complex world of taxes, you don’t have to do it all by yourself.
