If you owe the IRS back taxes, they will not ignore your tax debt. It might take some time, but the IRS will collect what you owe.
And the longer you wait, you will owe the IRS back taxes plus additional penalties and interest.
It is best to resolve your back taxes now so that you can minimize the long-term impact on your finances. Here are answers to the most frequently asked questions about back taxes:
What Are IRS Back Taxes?
Back taxes are simply unpaid taxes owed to the IRS after their due date. You can owe the IRS back taxes that were due one month ago or 8 years ago.
How Do I Find Out If I Owe the IRS Back Taxes?
The IRS mails a series of notices when you owe back taxes: CP14 (1st Balance Due Notice), CP501 (1st Balance Due Reminder), CP503 (2nd Balance Due Reminder), and CP504 (Final Balance Due Reminder) for starters.
If you haven’t received a back taxes notice from the IRS, an easy way to find out if you owe back taxes is to view your tax account on the IRS website.
If you lack reliable internet access or do not feel comfortable submitting your personal information online to confirm your identity, you can always call the IRS or make an in-person appointment at your local IRS office.
How Much Do I Owe the IRS in Back Taxes?
If you owe the IRS back taxes, you likely owe your unpaid tax debt plus any penalties and interest that have accrued since the original due date. Your back taxes notices from the IRS and your online IRS tax account will show the full amount you owe the IRS for back taxes, penalties, and interest.
Does the IRS Add Penalties and Interest to Back Taxes?
Yes, the IRS adds both penalties and interest to back taxes. As of 2022, the interest rate on back taxes is the federal short-term interest rate plus 3%. If in addition to having unpaid taxes you also failed to file your tax return on time, the IRS charges a failure to file penalty of 0.5% per month on your unpaid balance.
Both the failure to file penalty and the interest charges on your back taxes are capped at 25%.
How Does the IRS Collect Back Taxes?
The IRS will first attempt to collect your back taxes by sending you balance due notices in the mail and giving you the chance to pay your tax debt in full or make payment arrangements before they resort to more aggressive back taxes collection measures.
If you ignore the IRS back taxes notices or fail to reach a payment agreement, IRS collection efforts will become more aggressive.
More aggressive IRS collection efforts include:
Federal Tax Lien
A federal tax lien is a legal claim the IRS places on your property – usually your home or another high-value asset – so that when you go to sell, the IRS gets their share of your back taxes before you see a penny. An active tax lien is one of the fastest ways a real estate deal can fall apart. Read more: “Can You Sell a House with a Federal Tax Lien?”
Levies are arguably even more aggressive collection efforts than tax liens, as they allow the IRS to physically seize your property, such as automobiles, jewelry or other items of value, and sell it to offset your back taxes.
Wage garnishment refers to the IRS taking part of your paycheck to offset your back taxes. This is often the first action the IRS will take when a person with back taxes is a W-2 employee earning a regular paycheck.
How Do I Pay Back Taxes I Owe the IRS?
You can pay your back taxes to the IRS in several ways, including a check or money order, wire transfer, electronic funds transfer, credit or debit card, or even cash (at a local IRS office). Note that if you pay your back taxes with a card, you may incur a processing fee.
What If I Can’t Pay My Back Taxes?
If you cannot pay your back taxes, Wiztax can help you pursue an alternative arrangement with the IRS, such as an IRS payment plan/installment agreement or even an Offer in Compromise (OIC) – where you may be able to settle your IRS debt for significantly less than what you owe.
Can I Settle My IRS Back Taxes for Less?
The IRS will consider whether to settle your back taxes for less than what you owe when you submit an Offer in Compromise and prove a legitimate financial hardship that is unlikely to change in the near future.
Who Do I Contact at the IRS About Back Taxes?
If you want to talk to an IRS representative about your back taxes, you can call the number listed on any IRS notice you receive. You can also contact your local IRS office, which you can look up by location here: https://apps.irs.gov/app/officeLocator/index.jsp.
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