Are you behind on your taxes? Do you need back taxes to help? First: don’t panic. It’s a common enough situation that the IRS has a set of policies and procedures already in place. While owing taxes to the government certainly isn’t a pleasant experience, it’s also not the end of the world. There are a number of things that you can do to take control of the situation — you may just need some help first.
An Overview of Back Taxes Help, What It Means, and What You Need to Do
If you can’t pay your taxes when April 15th rolls around, you’ll owe the IRS money known and need “back tax help”. The IRS has some extreme rights to claim this money: it can garnish your wages, levy your bank account, or put a lien on your property. But it probably isn’t going to unless you become seriously delinquent.
It’s important to pay your taxes as quickly as possible, but sometimes the money just isn’t available. The IRS understands this. The IRS is actually more understanding than most people think they are. They want to get their money, and interfering with your life and lifestyle isn’t going to help either you or them.
To that end, the IRS does have programs such as long-term payment plans. But in order to qualify for a payment plan, you have to file all of your taxes. You need to do so as accurately as possible.
So, while having back taxes is a serious issue, it’s likely not going to bankrupt you.
What Happens If You Need Back Taxes Help And You Cannot Pay?
Let’s say you file your tax return on time, but you file it without payment. Your taxes are now late. Your taxes are going to begin to accrue penalties, including late fees, and interest charges — but there’s an upper limit on that. The failure-to-pay penalty limit to 25% of what you owe. If you owe $1,000, that debt is never going to become more than $1,250. That may be a small reassurance, but it’s a reassurance nonetheless.
The IRS will send you notices regarding your back taxes and will eventually take action against you. One of the first methods the IRS will use is simply taking any future refunds that you might qualify for. The IRS may also attempt to garnish your wages, levy your bank accounts, take out a lien on any assets you have, or attempt to dissolve your assets.
That sounds scary, but the IRS is spectacularly good at communication. They will never communicate by phone. Only by mail, and they will send you more than sufficient notice that you need to take action. As long as you update your mailing address with the government, you should get an advanced notice that they intend to take any of the above actions against you.
What If You Didn’t File a Tax Return At All?
If you didn’t file one, the IRS still has all of your documents: 1099s, W9s, and so forth. They can easily estimate how much you owe and will begin sending you letters saying that you need to file your taxes and that you need to pay the balance due. A back tax filing problem doesn’t help: in fact, it’s an additional complication.
In the United States, filing your taxes and paying your taxes are two separate processes. You need to file your taxes even if you aren’t able to pay them at the time. Not filing your taxes could get you penalties related to not filing in addition to the penalties for non-payment. Even if you can’t pay your taxes, you still want to file. If you can’t file on time, you can request a six-month extension.
What If You Don’t Know How Much You Owe in Taxes?
There are two reasons people usually end up with issues needing back taxes help. One is obvious: they don’t have the money to pay it. But there’s another, too: it could be that you just don’t know how much to pay. If your tax situation has dramatically changed, you’ve lost your paperwork, or you just can’t figure it out, you may hesitate to file your taxes because you don’t want to be wrong.
However, filing your taxes and paying your taxes are two separate things. You can pay your taxes and file for a tax extension rather than not paying at all. The IRS automatically grants a six-month extension. You just fill in a form requesting the extension along with the estimated tax payment and then you have six more months to file.
This prevents you from having to file a tax return that you think could potentially be incorrect. It makes it possible for you to both file on time and pay on time. Though you may find that you need to pay more later if your estimates were low.
What Should You Do If You Know You Can’t Pay Your Taxes?
Not being able to pay your taxes can feel overwhelming, but it is a common situation. Sometimes your tax situation can change dramatically and you may not know it until you go to file your paperwork. If you suddenly find out that you owe thousands of dollars rather than getting a refund, it’s understandable that you might be unable to pay.
Further, the tax code does change from year to year. Some dramatic tax changes can mean that you owe more than you expect. Early withdrawals from qualified retirement accounts can also impact your tax burden. All of these are things that could surprise you come tax time, and that you might not be adequately prepared for.
It’s Important Not To Panic
First, you should still file your tax return on time. Not filing isn’t going to help. The IRS actually already has all of your earning and wage documents on their side. The filing is only for you to claim deductions and credits that they may not know about yet.
You can file a tax return without payment. Also, you can file an extension so you can file your return in six months. However, do note that an extension to file your return is not an extension on payment: they still expect your payment (or an estimated one) on time. So even with an extension on your tax return, your tax payment is still considered late.
Once you file your tax return, you can either save up to pay off your tax bill, or you can enter into a repayment plan with the IRS. Entering into a repayment plan with the IRS is nearly always the better option: it’s fast, simple, and largely automated. From there, the IRS will automatically deduct taxes from your account every month for your back taxes. They won’t take further action against you.
How Can You Start Paying Off Your Back Taxes?
Once you’ve calculated your back taxes by submitting your tax returns, you can start paying off your back taxes by entering into a payment plan with the IRS. This can be a deceptively easy process in itself: the IRS maintains an automated service. The hard part is making sure your back taxes have been calculated properly and your returns have been appropriately submitted.
When the IRS has received and accepted your returns, you can apply for a payment plan through their website. If you owe less than $10,000, you will usually be automatically granted a payment plan for 3 years. You will have a total of 36 monthly payments to make to be free of your debt. It will be automatically deducted from your bank account.
How Can You Be Granted a Streamlined Payment Plan?
If you owe more than $10,000 but less than $25,000, you will usually be granted a streamlined payment plan for 72 months, rather than 36 months. However, the IRS may not always accept your payment plan: under $10,000 is virtually guaranteed. If the IRS does not accept your payment plan, you may need to negotiate with them directly.
If you owe more than $25,000 but less than $50,000, you may be able to qualify for a payment plan for 72 months. But you will need to contact the IRS directly and furnish your financial information to them. They will need to be able to see that you can pay the payment plan off and that. Also, you cannot reasonably pay your tax debt in full right now.
If you owe more than $50,000 in taxes, you will need to negotiate with the IRS. They will need to do a thorough review of your financial situation. However, they will still work with you to recover the debt in a way that doesn’t render you insolvent.
So, the good news is that if you owe less than $10,000, getting a payment plan is pretty easy. You don’t even need to talk to anyone. You can just log right into the website and sign up for a 36-month plan. However, when your debt goes over $25,000, things start getting a little more complicated. You do need to communicate with the IRS about your debt, but a tax professional can help.
What If You Can’t Afford an IRS Payment Plan for Your Back Taxes?
If you can’t afford the IRS payment plan that the IRS offers, you can also consider an “offer in compromise.” An offer in compromise settles your existing tax debt for less than what is owed. It’s only open to individuals who clearly cannot pay their tax debt with their current income and assets. Consider someone who made a lot of money five years ago but has since been rendered insolvent: the money for the taxes is gone and will not be back for the foreseeable future.
An offer in compromise is more difficult to obtain than an IRS payment plan. For obvious reasons: the IRS payment plan is already a fairly charitable, automated process. Nevertheless, with the help of an accountant (and often a lawyer), it can be possible to negotiate an offer in compromise. This is usually only done for particularly large tax debts, such as those ranging in the tens of thousands or hundreds of thousands.
How Can You Get Caught Up With Your Tax Returns?
Often, the problem with paying back taxes has little to do with the back taxes themselves and everything to do with not being caught up on tax returns. When you fall behind on your tax returns, it can be difficult to get caught up, because you may lose important documents or you may not be able to replicate your expenses. There may also be the (reasonable) fear that you’re filing incorrectly: after all, your taxes may be under additional scrutiny.
Working with a tax professional is the best way to get caught up with your tax returns. A tax professional can begin by securing the documents that the IRS already has (such as your wage and earning statements) and then going through your banking and credit card statements to find potential deductions and credits. A tax professional will be able to ensure that you aren’t paying too much on your taxes, thereby reducing your overall tax burden.
When you get caught up on your tax returns, you need to do each year one at a time: you can’t file 2018 before you file 2015. That means that you’re going to need to catch up on all your returns at once, which can be a substantial request. A professional can collect your documents and do this for you, and then let you know exactly what you owe the IRS.
Can You Pay Your Back Taxes Without Submitting Your Tax Returns?
It’s always possible to pay taxes before submitting your returns, but failing to submit a tax return is an issue in and of itself: you may get IRS notices and penalties associated with a lack of filing. Many people who are self-employed or who own businesses pre-pay their taxes in advance by sending in estimated tax payments. If you’re concerned you may owe taxes at the end of the year, this is always an option.
However, even though you can send tax payments in without sending in your tax returns, you can’t know how much you truly owe before you finish your tax returns. If you have the money to pay for your taxes and want to send it in to the IRS, you can do so, but you’re still going to need to figure out your tax situation at some point. You may owe substantially less than you think, or you could owe substantially more: either one would be a bad situation to be in.
How Much Time Do You Have to Pay Your Back Taxes?
When you’re late on your back taxes, the IRS will start sending you notices regarding your debt immediately. But that doesn’t mean they will take action to collect immediately. It’s up to the IRS how aggressive they want to be in collecting your back taxes. For some people, wage garnishment could occur immediately. For others, they may go years without any attempts from the IRS.
Regardless of how quickly the IRS will act, the IRS can act very quickly if it wants to. It can freeze bank accounts if needed and it can issue wage garnishments when it wants. Unlike other creditors, it doesn’t have to go to court to get a judgment to do this. If you owe back taxes, you could easily wake up one day to your bank account being frozen.
This underscores the importance of dealing with your back taxes as soon as possible, and it’s why the IRS has made the process of dealing with back taxes quite easy.
If you owe less than $10,000, the IRS will generally give you three years to pay that debt off. This usually creates a fairly reasonable payment plan. If you owe more than $10,000 (but less than $50,000), the IRS will usually give you up to six years to pay the debt off. And if you can pay the debt off within four months, you can qualify for a shorter-term, less expensive payment plan.
If you owe more than $50,000, you will need to discuss your back taxes with the IRS. But, generally, IRS payment plans will last between three years to six years, and you’ll be paying a monthly payment throughout that time.
What Should You Do If the IRS Garnishes Your Wages or Levies Your Bank Account?
You can stop an IRS wage garnishment or bank account levy by agreeing to an installment plan. In general, when the IRS garnishes your wages or levies your bank account, they aren’t just trying to secure funds from you: they’re also trying to get in contact with you. It’s up to you what your next action is. If you communicate with the IRS, send in your tax returns, and begin an installment plan, they will generally cease the garnishment or levy.
It’s also possible to change jobs to avoid wage garnishment, but the wage garnishment will eventually follow you. Likewise, while you can open an additional bank account, the IRS is likely to also levy that bank account. The IRS has a significant amount of power when it comes to acquiring its tax payments: it’s a better idea to address the situation as soon as possible. Often communicating with the IRS, with the help of a tax professional, will be enough to get you some time to get your finances in order.
Can You Declare Bankruptcy to Get Rid of Back Taxes?
Declaring bankruptcy is an option to get back taxes to help, and there are times when it may make sense. If you owe a significant tax burden, cannot qualify for a settlement (“offer in compromise”), and wouldn’t be able to make the requested payment plans, declaring bankruptcy will wipe out your tax debts. You will need to liquidate many of your assets, but there are some assets that are protected during a bankruptcy (usually your primary home, vehicle, and retirement account).
However, it’s usually the last option, because declaring bankruptcy is going to harm your credit and remain on your file for 7 years. Before you attempt bankruptcy, you should generally go through the payment plan or the offer in the compromise process. In many cases, a payment plan or settlement is not going to hurt your credit and will attempt to repay your taxes without a significant adverse impact on you.
Get Back Taxes Help: What’s Next?
If you owe back taxes, the first thing you need to do is make sure all of your tax returns have been filed and accepted with the IRS. It is not possible to negotiate payment plans or settlements with the IRS until they have all of your documents in hand. This can be a tall order if you’re significantly late on your tax returns. Start by collecting all the tax paperwork that you do have, in addition to your bank and credit card statements for that time.
Once you’ve filed your tax returns with the IRS, it’s a matter of communicating with the Internal Revenue Service. The IRS has several methods in place for getting caught up with your tax return, including a fast path repayment program, a streamlined repayment program, and an offer in the compromise settlement program. Each of these will help you avoid adverse actions such as wage garnishment or bank levies.
If you’re needing back taxes help and you cannot pay, you need to address the situation now. But you don’t need to do it alone. At Tax Samaritan, we can help you get caught up on your tax returns and on your back taxes, and well on your way to being square with the IRS. Contact us at Tax Samaritan today to learn more about back taxes and how you can resolve your debts without getting overwhelmed.