If you have failed to file required tax returns, if you have filed returns inaccurately, or if you have filed tax returns but failed to pay what you owe, you may have a tax debt. However, figuring out if you owe the IRS money and/or exactly “how much do I owe the IRS” can be a challenge. The tax code is complicated, and it changes every year. Depending on your situation, you may need to find the answers to these questions on your own, or you may need to consult a tax professional. Below is some information to help you find out whether you owe the IRS money, as well as how much you may owe.
Why Should I File Tax Returns?
The law requires certain individuals and businesses to file tax returns on an annual basis. Even if you don’t owe any money to the IRS, you may still be required to file a tax return for reporting purposes. In fact, many people who live and work outside the United States will owe no taxes at the end of the year with the right credits and deductions, but a promptly filed tax return is still required. It’s a very common misconception for taxpayers abroad to assume that a return is not required if earned income is below the foreign earned income exclusion. The fact is that there is a tax liability until a return is filed to claim the exclusion benefit (which must be claimed annually). If not filed timely, you may lose the right to claim this benefit. It’s important to avoid the situation of filing taxes late.
If you don’t file your taxes on time when the law requires you to do so, you will face penalties. If you also fail to pay the taxes you owe, your penalties will be even greater. For this reason, filing your required tax returns before the due date and paying your tax debt to the IRS on time is essential.
The specific filing requirements for taxpayers change on an annual basis, so it is important to stay up-to-date on the latest laws so you can be sure you are in compliance at all times. If you are not sure whether you need to file a return, contact a tax professional for guidance.
Understanding Penalties and Interest
The IRS assesses penalties and interest on unpaid tax debts for various reasons. Some of the most common penalties charged include:
- Failure to file
- Failure to pay taxes
- Failure to pay estimated taxes
When you have failed to file a required tax return, the penalty will be equal to 5 percent of the unpaid tax required to be reported on the return.
If you fail to pay tax you are required to pay, you will owe an additional penalty that will be assessed based on your tax debt. The penalties will continue to accumulate until you have paid everything you owe.
If you fail to pay your estimated taxes, the penalties and interest will be calculated for each missed payment and will continue until the amount you owed has been paid.
Many taxpayers will owe more than one type of penalty when they have a tax debt. Depending on the amount of your debt, these penalties and interest charges can accumulate quickly. For this reason, it is important to act immediately when you learn that you have unfiled tax returns or unpaid tax debts.
How Do I Know if I Owe the IRS?
Many taxpayers are not sure whether they owe any money to the IRS. Thus, you should find out “how much do I owe the IRS”. It can be especially confusing if you live and work overseas. In general, you may owe money to the IRS if:
- You meet the filing requirements but haven’t filed. The IRS has established basic requirements that indicate when a tax return must be filed. These requirements apply to all taxpayers, including those who live and work abroad. You can learn about the specific filing thresholds that apply to you by visiting the IRS website or consulting an experienced tax professional.If you meet the requirements for filing a tax return but you have not done so, you may owe the IRS money. The exact amount you owe will depend on the specifics of your situation.
- You have received a notice from the IRS. In most cases, taxpayers who owe money to the IRS will receive a notice indicating the amount they owe and demanding payment. If you have received such a notice from the IRS, you owe money and need to take action to resolve your debt as soon as possible. If you have moved overseas, the IRS will still issue legal notices, but it is common to not receive these notices if you haven’t updated your address with the IRS (mail from the IRS is never forwarded) and your rights and options can be impacted even if you have not received this legal notice (the IRS puts the onus on the taxpayer to keep their address of record current).
In the past, it was common for accounts to fall through the cracks, leaving some taxpayers without notices from the IRS even when money was owed. Thanks to modern automation technologies, this situation is rare today. Nonetheless, even if you have not received a notice from the IRS yet, you may still owe money. If you have any question about whether you owe money, you should contact the IRS and/or a tax professional as soon as possible.
One of the easiest ways to determine whether you owe money to the IRS is to watch your incoming mail for a notice. IRS notices are letters sent to taxpayers for specific purposes, such as demanding payment for tax debt. There are more than 1,000 different notices a taxpayer may receive from the IRS, but not all of these notices indicate that money is owed.
Some of the most common reasons for receiving a notice from the IRS include delays in the processing of your tax return, an amendment to your tax return, a question about your return and having an outstanding tax balance. If you are receiving a notice because of an outstanding balance, the IRS will continue to send notices until the proper payment has been received. The longer you fail to respond, the worse the consequences will be.
Many taxpayers feel intimidated after they have received a notice from the IRS. However, ignoring these notices is never recommended. The IRS is willing to work with individuals and businesses that want to settle their debts, even if they can’t make immediate payment in full. On the other hand, the consequences for not taking any action to resolve the matter can be severe. For this reason, it is always better to be proactive.
The two primary notices used to demand payment for tax debt are the IRS Statutory Notice of Deficiency and the Final Notice of Intent to Levy.
IRS Statutory Notice of Deficiency
If you receive this notice from the IRS, the IRS is indicating that you owe additional taxes on a specific return you have already submitted or an unfiled return. The IRS typically sends this notice because they have performed an audit and determined that your return does not match the income information they have received from other parties. The IRS may also send you this notice if they are investigating an unfiled return.
In most cases, you will have received multiple notices from the IRS prior to receiving the IRS Statutory Notice of Deficiency. Once you receive this final notice, you will have 90 days to pay the bill in full or protest the debt.
Final Notice of Intent to Levy
If you receive the Final Notice of Intent to Levy, you have likely ignored multiple notices from the IRS already. If you have received these notices and still refused to settle the debt, the IRS will send you this document to inform you that your case is being sent to the IRS’ collections department.
After you receive this notice, you will have 30 days to make a payment plan before the collections department will begin taking action against you. If you do not resolve the debt before this deadline, the IRS can begin taking funds from your bank account or even directly from your paycheck before you receive it.
Although receiving a notice is a good indication that you owe money to the IRS, some notices may be based on inaccurate information. If you think the claims the IRS is making against you are not based in fact, you should talk to a tax professional as soon as possible about your situation.
Taxpayers who travel outside the United States frequently and have significant outstanding tax debts should take a special interest in the Fixing America’s Surface Transportation Act (hereinafter “the Act”). The Act may sound unrelated to taxation but it contains provisions aimed at accelerating the collection of larger tax debts thru the possibility of passport revocation.
Steps to Take When You Think Owe Money
If you owe money to the IRS, you need to take action as soon as you can in order to minimize the amount of penalties and interest you will pay. If you think you may owe money to the IRS, follow these steps to deal with the issue:
- Determine whether you actually owe money. Sometimes you may mistakenly believe you owe money to the IRS when you really don’t. Get answers to the question – How Much Do I Owe The IRS? If you suspect that you may owe money, begin by verifying the amount you owe. You may decide to call the IRS on your own and ask about your balance, or you may decide to talk to a tax professional instead. If your account shows a balance, you should also check all of the information on your account to make sure it is accurate. In rare cases, the IRS may have made their calculations based on inaccurate information or a substitute tax return (they have prepared an unfavorable tax return on your behalf), causing you to show a balance you don’t actually owe.
- Explore your options for resolution. When you have learned that you do owe a debt to the IRS, you must find a way to resolve it. If you are able to pay your debt in full, you should do so immediately so you can stop the penalties from accumulating. If you are not able to pay your debt in full, you need to look into debt resolution options. You may be able to set up a payment plan, or you may qualify for debt relief.
- Consider seeking professional help. If you have learned that you owe money to the IRS, you are likely feeling overwhelmed. A tax professional can help you determine exactly what you owe, explore your options for repaying it, and complete the process of resolving the debt. They will handle all communications with the IRS so you never have to talk to the IRS. Tax Samaritan has many years of experience helping taxpayers resolve all types of tax debts, and we can help you deal with your situation effectively.
How Much Do I Owe the IRS?
After you have determined that you owe money to the IRS, you may be wondering about your exact balance. Unfortunately, because this balance changes over time as interest and penalties accumulate, it can be difficult to get an accurate estimate. There are several ways to obtain this information, but the most common methods are discussed below.
Searching for Your Balance Online
One of the easiest ways to find out how much you owe is by checking your account with the IRS online. If you are an individual taxpayer, you can use the IRS’ “View Your Tax Account” tool to view your current payoff amount, which is updated on a daily basis. This amount will be broken down into the principal balance and any penalties or interest that have accumulated. You will also be able to view the balance for each tax year for which you owe money, as well as up to 24 months of your payment history. In addition, this tool will provide specific information from your original tax return for the current year.
You can use this tool to make payments on your account. You can also use the tool to print a transcript.
In order to access your account balance using this tool, you will need several pieces of information, including your:
- Social security number
- Date of birth
- Filing status
- Mailing address from your last tax return
- Email address
- U.S. mobile phone with your name on the account
- An account number from a mortgage, home equity loan, credit card or car loan in your name
Keep in mind that this online tool will update your outstanding balance on a daily basis, but it will take up to three weeks for any payments you have made to post to the account.
Unfortunately, if you have a foreign address, typically the IRS will not be able to verify your identity and you will not be able to access your information online.
Calling the IRS
If you would rather not use the IRS’ online tool to find out how much you owe the IRS, are unable to have the IRS system validate your identity or if you don’t have internet access, you can call the IRS directly to inquire about your balance. If you are an individual taxpayer, you can reach the proper department by calling 800-829-1040 or 267-941-1000 if calling from outside of the U.S. If you are representing a business, you can reach the IRS at 1-800-829-4933.
Estimating Your Balance by Mail
In most cases, the IRS will include your outstanding balance on any notices they send you. If you have a copy of your last statement, you can find an estimate of your current balance. However, this estimate will not include any interest or penalties that have accumulated since the notice was issued. In addition, the IRS often sends separate notices for separate tax years. Thus, if you owe taxes for multiple years, you must add up all of the balances listed on the notices you have received to get an idea of your total outstanding debt.
Visiting Your Local IRS Office
Another way to find out how much you owe the IRS is to visit your local IRS office and inquire about your account in person. However, it is important to keep in mind that if you use this method to find out your balance, the agent who accesses your account information may push you to resolve the debt in a specific manner while you are in the office.
How Much Do I Owe the IRS? How To Find Out Federal Back Taxes Owed
The IRS also accepts written requests for account balance information. To request a Record of Account, you must complete Form 4506-T, “Request for Transcript of Tax Return.” Your Record of Account will include all of the tax liabilities, payments and adjustments for the tax years in question. This document will also list any balances you owe for each tax period.
Completing Form 4506-T
You can download and print the Form 4506-T , or you can call the IRS directly and ask to have a copy of this form mailed to you. Once you have the form, simply complete the basic contact information requested at the top of the form and indicate your status as a taxpayer on line 6. Check “C” to request a Record of Account, and list the years you want to include on line 9. Finally, sign and date the form before mailing it to the IRS. The IRS will mail to your address currently on file. Generally, this will be the address used on your most recent tax return.
Contact a Tax Professional – How Much Do I Owe The IRS? Not Sure if You Owe the IRS?
In many cases, taxpayers are nervous about contacting the IRS about the possibility of an outstanding balance. In addition, because IRS laws are so complicated, understanding your account and resolution options can be difficult.
A tax professional can act on your behalf, communicating with the IRS to find out how much you owe. An experienced tax professional can also help you resolve the situation in the way that is most beneficial to you without putting you at undue risk (the goal of the IRS is to collect income tax debt and they will use all means at their disposal during your conversation to do so; most taxpayers are unaware of what information must be disclosed and what information does not have to be disclosed).
What Happens if I Ignore IRS Notices?
If the IRS sends you notices and you ignore them, you may face several serious, life-changing consequences. While some of these consequences are immediate, others will affect you on a long-term basis. Some of the consequences you may face if you ignore notices from the IRS include:
- IRS investigation. In some cases, the IRS will choose to investigate taxpayers when they believe a debt may be owed. A tax revenue officer may visit your home to ask you specific questions relating to your finances. This officer may also offer advice or warnings specific to your unique situation. If your case has been assigned to a Revenue Officer whether you live in the U.S. or abroad, this is not a good thing
- Substitute for return. When you fail to file a tax return after the IRS has instructed you to do so, the IRS may file a substitute for return to take the place of your regular tax return. When preparing this document, the IRS will calculate your taxes for you based on the information provided on your previous returns. This means you won’t get to decide which credits or deductions you take, which could potentially increase your debt significantly.
- Seizure of your assets. If you owe a tax debt to the IRS, they may seize your personal assets to cover it. Some of the assets that may be seized include your car, house or other valuables that can be sold at a high price. If you owe more than $50,000, the IRS can also freeze your passport (preventing any travel except to return to the U.S. which may include detention upon arrival in U.S. Customs) and prevent you from obtaining or renewing a passport.
- Wage garnishment. If the IRS uses a wage garnishment to collect a tax debt you owe, a portion of your paycheck will be sent directly to the IRS every pay period until your debt has been paid in full.
- Criminal charges. In cases where the IRS believes you have committed a serious crime, such as tax evasion or fraud, criminal charges may be filed against you. If you are convicted of these charges you may face jail time or other penalties.
Dealing With Unpaid Tax Debt
If you owe a tax debt and you are not able to pay it, you have a few options. In general, it is always better to get in contact with the IRS, even if you are not able to pay your debt at this time. The IRS is much less likely to take aggressive action against you if you have made an effort to make payment arrangements with them. When you are in communication with the IRS, you may also pay less interest and fewer penalties.
Some of the debt resolution options available to taxpayers with debts they can’t pay include:
- Extensions. If you are not able to pay your debt right now but you think you may be able to pay in the near future, you can request a short-term extension. Short-term extensions give you up to 120 days to pay the outstanding debt you owe without facing serious consequences from the IRS.
- Installment Agreement. Many taxpayers find it easier to pay their debts if they are able to spread them over multiple payments. If you are not able to come up with all of the money you owe right now, you may be able to apply for an installment agreement. In general, this type of debt resolution is available only for taxpayers who owe no more than $50,000 in back taxes and penalties.
- Offer in Compromise. If you don’t believe you will ever be able to pay your tax debt in full without causing yourself undue financial hardship, you may be able to settle the debt with an offer in compromise. If you choose this debt resolution, you will be able to settle your debt for less than the full amount you owe.
- First Time Penalty Abatement. If you meet certain requirements, you may be able to have your penalties waived under the IRS’ First Time Penalty Abatement policy. In order to qualify for this type of relief, you must meet the following qualifications:
- You must have paid or made arrangements to pay any tax you owe.
- You must have filed all of your required returns, or you must have requested an extension.
- You must have no history of penalties in the three tax years immediately preceding the year for which you received a penalty.
Although less common, there are other methods you may be able to use to reduce or even eliminate your outstanding tax debts. These other strategies include:
- Innocent Spouse Relief. If you filed a tax return jointly with a spouse and you can show that your spouse was solely responsible for the unpaid tax debt and/or any crimes committed in relation to unfiled or unpaid taxes, you may qualify for innocent spouse relief.
- Bankruptcy. In some cases, you may be able to discharge some of your tax liability by filing bankruptcy. However, because of the effects on your credit and the other consequences of bankruptcy, this option is usually considered a last resort.
- IRS Tax Appeal. If you disagree with a decision made by the IRS, you may be able to appeal the decision and eliminate any associated debts or penalties.
- Currently Non-Collectible Status. If you can show that you are not able to pay your tax debt at this time because of severe financial hardship, the IRS may agree to change the status of your account to “currently non-collectible.” This means that the IRS will place a temporary hold on all collection actions.
However, the IRS will revisit your case every one to two years to see if your economic situation has changed.
In some cases, you may also be able to eliminate tax debts if the IRS statute of limitations has passed. However, determining the exact beginning of the IRS’ collection period can be challenging. The IRS has only ten years from this date to collect the debt.
In addition, some taxpayers who don’t qualify for First Time Penalty Abatement may still qualify for penalty abatement if they are able to show that there is reasonable cause for the failure to file or pay tax liabilities. If you qualify for penalty abatement, the IRS may reduce or eliminate the penalties and interest you owe on your tax debt.
In some cases, you may be eligible for more than one type of debt relief, but figuring out which types of debt relief are available in your situation can be a challenge. For this reason, if you owe an outstanding tax debt and you are not sure how to go about resolving it, you should consider contacting an experienced tax professional for guidance. A tax professional will be able to review your situation and help you decide which form of relief is best for you. Getting help from a tax professional can also increase your chances of successfully qualifying for debt relief.
The Importance of Filing Your Taxes
Even if you are not able to pay your full tax debt by the due date, you should still file any required tax returns on time. Failing to file a required tax return results in another penalty, so it is always better to file the return than to attempt to ignore it. In fact, for many taxpayers, filing a tax return will save you hundreds or thousands of dollars in failure to file penalties.
How a Tax Professional Can Help
Regardless of your situation with the IRS, a tax professional who has experience with back taxes and unfiled returns can help. If you are not sure whether you have back tax returns or delinquent taxes, we can review your situation, get the answer to the question “How Much Do I Owe The IRS”, get into contact with the IRS, and figure out whether you need to file returns and/or pay an outstanding debt.
Once we understand your situation, we will help you explore all of your options for getting right with the IRS. We will explain the pros and cons of each option so you can make the best decision in your unique situation. After you have decided how you want to proceed, the team at Tax Samaritan will help you resolve your situation in whatever manner you have chosen. We will communicate with the IRS on your behalf and guide you through the debt resolution process from start to finish so you don’t have to.
If you are dealing with outstanding tax debt and/or unfiled tax returns, Tax Samaritan is here to help you. We specialize in expatriate taxes, and we can also assist with all of your other tax needs as well, including preparing your tax returns, submitting Foreign Bank Account reports, wealth management and much more. Please contact us today to learn more about our services.