If you owe back taxes, it can quickly become scary with time. That is especially true because the Internal Revenue Service (IRS) can enforce collection actions on you. As a result, your financial stability will be a mess with time.
Unpaid taxes don’t go away on their own. In fact, they start accumulating penalties, growing interest, and much more severe consequences like wage garnishment or property liens. Many taxpayers are caught off guard, thinking their tax filings were handled properly. But as the years progress, they find out that something was missed.
But how can you be sure if you owe back taxes, and what can you do about it?
That’s what we’re here to answer. Keep reading this blog post to uncover unpaid tax liabilities and the tools to address them before the situation escalates.
Read More → What Is the IRS Fresh Start Program?
Understanding Back Taxes
Unsettled back taxes are those a person did not pay in previous years.
These taxes that have not been paid or received could be because of various reasons, such as simple oversight, inaccurate information, or ineffective tax-saving strategies. While some cases are unintentional, others are purposeful. Here are some of the common causes that lead to back taxes:
- Filing a tax return but failing to pay the full amount owed.
- Forgetting to report all the income earned during the year.
- Ignoring to file a tax return altogether.
In the event that a taxpayer did not file a return, the IRS puts a fee of 5% of the unpaid taxes for each month (or, part of a month) that the return is late, up to a maximum of 25% of the total amount.
Additionally, the IRS applies interest on all unsettled taxes from the day of the tax return until it is completely paid. The interest rate is determined quarterly, based on the federal short-term rate plus 3%, and it compounds daily.
- Unpaid back taxes are a severe issue. It holds true for those who do not have the resources to pay. Depending on the situation, the government can approach this situation as:
- Pressing legal charges for intentional non-payment.
- Demanding immediate payment.
Offering programs like voluntary disclosure, which allows taxpayers to settle their dues without facing criminal charges and provides options for payment plans.
In severe cases, failure to pay back taxes can, in fact, cause a person to be sent to prison.
Also Know About→ Notice of Intent to Levy
How Do I Know if I Owe Back Taxes?
There are several ways to check and resolve any outstanding balances. Some of the ways to check it out are listed below:
Review IRS Notices Sent to Your Address
The IRS communicates through formal letters when there’s an outstanding tax balance. These notices often include:
- Notices of Deficiency or Balance Due Notices which list the amount owed and the tax year in question.
- Instructions on how to resolve the issue, either by paying or disputing the amount.
It’s critical to follow up immediately. Failing to do so may result in additional penalties and interest. Always read these letters carefully and act promptly.
Examine Previous Tax Returns for Errors
Sometimes, unpaid taxes arise due to mistakes in earlier filings. To identify any issues:
- Review your past tax returns for unreported income, especially from freelance or side work.
- Ensure all deductions and credits are correctly applied.
If you discover errors, consider filing an amended return using Form 1040-X. This can help correct the issue and may reduce the amount you owe.
Access Your IRS Account Online
The IRS provides an online service where you can view your tax account information. To use this tool:
- Visit the IRS website and select “View Your Account Information.”
- If you don’t have an account, create one and verify your identity with your Social Security number.
Once logged in, you’ll have access to:
- Your balance, including any taxes, penalties, and interest.
- Tax transcripts with detailed records and adjustments made by the IRS.
Contact the IRS for Assistance
If you prefer talking directly to someone, you can call the IRS for assistance. To do this:
- Dial 800-829-1040 for individual taxpayer support.
- Be ready with your Social Security number, prior tax returns, and any IRS letters you’ve received.
An IRS representative will help you with:
- Information on how much you owe and for which tax years.
- Options for resolving your debt or setting up a payment plan.
Read If→ Received Certified Mail from the IRS
