Few things make your stomach sink faster than receiving a notice that you owe the IRS. Once the IRS determines you have unpaid taxes, it is hard to shake them if you do not take steps to resolve your tax issues. The IRS has many resources to pursue and collect the taxes you owe.
While dealing with the IRS is never fun, it is less scary if you understand how the collection process works and the best ways to settle your tax debt when you owe the IRS. Here are the answers to some of the most important questions if you owe the IRS back taxes.
What Are Back Taxes?
Back taxes refer to taxes you owe the IRS and have not been paid by their due date — typically April 15th. So, if you have a tax balance due of $20,000 and you do not pay it by the April 15th deadline, you will owe the IRS that much in back taxes, plus additional interest and penalties until you settle your tax debt. If you pay part but not all of your tax bill, the unpaid balance becomes back taxes you owe the IRS.
Do I Owe IRS?
Most taxpayers find out they owe back taxes because the IRS tracks them down, usually sending a notice or letter indicating the tax balance due and the next steps the IRS plans to take to collect it.
Unfortunately, by the time you receive an IRS balance due notice, your taxes are already overdue, and you have probably accrued additional interest and penalties on top of your original tax balance due.
For that reason, if you think there is any chance you might owe back taxes to the IRS, you should find out for sure and deal with your tax issues proactively. The IRS offers several ways to do this.
How To Find Out If You Owe Back Taxes
The easiest way to find out if you owe back taxes to the IRS is to review your tax account online at IRS.gov/account. If you do not have an account, it only takes a couple of minutes to create one. You will just need a few pieces of identifying information, such as your full name, address and, most importantly, Social Security or taxpayer ID number.
Once logged into your account, you can view not just your current overdue tax balance but also your payment history and other essential information from current and past tax returns.
The IRS will also send you notices informing you of your delinquent taxes. These tax balance due notices and letters include CP14, CP501, CP503, C504, LT11, LT16, and others depending on how long your tax balance has been overdue and whether you have made payment arrangements with the IRS. See our blog post on “Common IRS Notices You Receive When You Have Tax Debt.”
How Much Do I Owe IRS?
You can find out how much you owe the IRS by logging into your online tax account or by contacting your local IRS Tax Assistance Center, where a live person can help you.
When the IRS sends you a balance due notice or other tax debt letter, the notices and letters also include the amount you owe the IRS. If you do not respond to an IRS notice or make payment arrangements, the IRS can file a federal Tax Lien and/or seize your assets through bank levies and wage garnishments.
Refund If I Owe IRS?
If you owe the IRS, you might still get a tax refund, as the IRS does not always take collections action against you the minute you have an overdue tax balance.
That said, if the IRS has not been able to collect your tax debt, one of their favorite enforcement actions is to seize some or all of your tax refund. If the IRS seizes only part of your refund, they will send you a check for the remainder.
When the IRS plans to seize your refund, they will notify you of their intent by mail. You can receive a CP504, CP16, CP49, or other notice.
What If I Can’t Pay Taxes?
If you cannot pay your tax bill, the IRS offers several ways to settle your tax debt. You are far better off overall taking advantage of one of these tax relief options rather than ignoring your unpaid taxes.
Options For Settling Your Tax Debt
Options for settling your tax debt if you owe the IRS but can’t pay the taxes all at once include:
- Installment Agreement (IRS payment plan), in which you make a fixed monthly payment to the IRS until you settle your tax debt.
- Offer in Compromise (OIC), in which the IRS agrees to settle your tax debt for a lower amount. When you submit an OIC to the IRS, you will need to prove financial hardship based on income, assets, and expenses.
- Options If You Already Have an IRS Installment Agreement. If you already have an installment agreement and can no longer make the monthly payments or owe new taxes to the IRS, you should contact the IRS to amend your existing payment plan.
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