Struggling with money owed to the IRS can be a distressing and daunting ordeal. It means that you have not paid the full amount of taxes owed on your income for a specific tax year. Various elements can lead to owing taxes at the end of the year, including inadequate funds for payment, underestimating withholdings from paychecks, and submitting errors on tax returns.
Failing to pay your taxes can result in severe consequences, including penalties, interest, and collection actions. The IRS has the authority to garnish your wages, levy your bank accounts, seize your property, and file federal tax liens. These actions can significantly impact your financial well-being and credit score. It is important to take immediate action if you owe taxes and are unable to pay them in full.
This blog post will explore the consequences of not paying your taxes and the options available to help resolve your IRS debt.
Penalties For Not Paying Your Taxes
The IRS has put in place penalties and interest charges to entice taxpayers into filing their taxes on time. If you’re late on payments or fail to pay, the IRS will impose hefty fines and an accumulation of interest on your owed amount. This is why it’s paramount that you adhere to a payment schedule and avoid any potential repercussions from the government!
Failure to File Penalty
If you fail to file your tax return by the deadline (including any extensions granted), a penalty of 5% will be assessed each month for up to 25%, based on the amount due as stated in your return. To calculate this failure-to-file fee, simply multiply your balance owed by 25%. If it is more than five months late, then the maximum rate of 25% applies.
The IRS will also assess a failure-to-pay penalty if you do not pay your taxes by the deadline. This penalty is usually 0.5% per month of unpaid taxes, and it will continue to accrue until the taxes are paid in full or until it reaches 25% of the unpaid taxes.
Interest On Unpaid Taxes:
The IRS will charge interest on unpaid taxes. The interest rate is determined on a quarterly basis and is currently at a rate of 7% per year. Interest will accrue on the unpaid taxes and any penalties assessed.
It’s important to note that the penalties for not paying taxes can add up quickly, making it even more difficult to pay off the debt. If you are unable to pay your taxes in full by the deadline, it’s recommended that you contact the IRS to explore payment options, such as a payment plan, to avoid or minimize these penalties.
Collection Actions By The IRS
When you neglect to pay your taxes in full upon filing your tax return, the IRS will issue a bill for the outstanding amount. This marks the start of their collection process, which continues until all payments have been made or when legally no more can be collected as determined by the expiration of time or period limits set forth by law.
Garnishment Of Wages:
The IRS can garnish your wages to collect unpaid taxes. This means that your employer will be required to deduct a certain amount of money from your paycheck and send it to the IRS. The amount of the garnishment will depend on your filing status, the number of dependents, and the amount of your disposable income.
Levy On Bank Accounts:
The IRS can also place a levy on your bank accounts to collect unpaid taxes. This means that the IRS can freeze your bank account and seize any funds that are in the account to pay your tax debt.
Seizure Of Property:
The IRS can also seize your property to collect unpaid taxes. This includes things like real estate, cars, boats, and other assets.
Filing Of Federal Tax Liens:
The IRS can also file a federal tax lien, which is a legal claim against your property, including any real estate, personal property, and financial assets. This lien will be noted on your credit report and can make it difficult to obtain credit or sell your property.
It’s important to note that before the IRS takes any enforcement action, they will mail a series of notices to the taxpayer and provide an opportunity for the taxpayer to appeal and make arrangements to pay the taxes owed. If you have received a notice from the IRS, it’s important to take immediate action to address the debt and avoid these collection actions.
What Are IRS Payment Options?
Payment options for people who owe taxes and can’t pay come in a few different forms:
- Payment plans – These are an option available from the IRS or other relevant tax authorities where an individual can set up a plan that allows them to pay off their balance gradually over time.
- Offer In Compromise – An offer in compromise is another approach, which is essentially a settlement with the IRS or tax authorities whereby you agree to pay less than the full amount you owe. This may be appropriate if your financial circumstances have made it impossible for you to pay your debt in full.
- Financial hardship – It’s important to consider your financial hardship situation when deciding what payment option will work best for you. An IRS hardship program could potentially allow taxpayers to reduce their tax debt. Qualifiers must prove their inability to cover necessity living expenses such as rent, utilities, transportation, etc.
Consult with a qualified financial advisor or tax professional to help analyze your unique situation and determine what will be the most beneficial course of action.
Ask For Help From A Tax Professional
When dealing with IRS debt, it’s important to seek professional help. Trying to handle your situation on your own without any guidance or support can be daunting and intimidating. Professional assistance can help you find a fresh start relief option program that fits your unique needs.
The Bottom Line:
If you find yourself owing the IRS money and are unable to pay, it is important to take action to minimize penalties. The sooner you contact the IRS, the better your chances of avoiding or minimizing interest and penalties.It doesn’t have to be difficult to pay your taxes; with the wide array of payment options at hand, you can make it easier. Tax professionals are standing by and ready to guide you through understanding all available choices and creating a strategy so that you get back on track as soon as possible.