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Back Taxes

What You Need to Know About Back Taxes

In current economic settings, many taxpayers have back tax balances they cannot pay. When faced with this situation, the worst choice a taxpayer can make is to ignore the problem and hope it will disappear, which will never happen, frankly speaking. The consequences of disregarding an overdue tax liability can be harsh financially.

With more resources being allocated to the IRS for enforcement, it will be increasingly more work for taxpayers with back tax balances to remain under the radar. The best action is prevention or paying the back tax balance in full if resources allow and, if not, to maximize the tax settlement options the IRS offers.

Although numerous new tax resolution programs have recently been initiated, the qualifying criteria are complex and may need to be confusing. For this reason, a taxpayer who owes back taxes may be best served by contacting a tax settlement professional to help determine which option will offer the most effective resolution for their specific circumstances.

Back Taxes, Forward Solutions

Ignoring the looming debt of back taxes is detrimental and can lead to severe repercussions, especially when the IRS intensifies its enforcement measures.

If you’re a busy person, a side hustler, or perhaps an executive of a company, handling your own taxes, may consume your precious time. Why not let the professionals at Amity One alleviate the burden with forward-thinking solutions?

Commitment to Tax Clarity

The experts at Amity One understand the weight of tax balances and the stress they bring. That’s why our dedicated team is committed to standing with you every step of the way, ensuring your peace of mind with tailored solutions and clear insights into tax settlement options.

Understanding the Consequences of Back Taxes

Assessment of Interest and Penalties

Back tax balances are compounded over time by adding interest and penalties to the extent that it is not uncommon for these additional charges to total as much as 50% of the original tax liability.

  • Interest – Because the IRS considers a back tax balance to be the equivalent of a loan from them, they charge interest on the tax amount due. The interest rate changes every three months and is calculated by taking the federal short-term rate and adding 3%.
  • Penalties – A failure-to-pay penalty is assessed at the rate of 0.25% to 1% of the back tax amount due for each month that there is an unpaid balance. The maximum amount that this penalty can reach is 25% of the original tax amount owed.

Enforced Collection Activities

Although the IRS will begin collecting back taxes with passive techniques such as issuing an IRS letter or an IRS Notice, the collection methods become more aggressive the longer the tax bill is left unpaid. Eventually, the IRS may file a tax lien, issue a tax levy, or initiate a wage garnishment.

  • Liens – A tax lien is a method the IRS uses to collect back taxes by holding an ownership stake against one or more of a taxpayer’s assets. A lien can be placed on a bank account, a property, or any other asset with a significant value.
  • Levies – A levy is the actual seizure of a taxpayer’s property to satisfy a tax debt. The IRS can levy physical assets, bank accounts, retirement accounts, dividends, wages, and numerous other assets. A levy is one of the final steps taken in an attempt to collect back taxes and is usually exercised only after all other collection attempts have failed.
  • Wage Garnishment – A wage garnishment is an aggressive collection technique used by the IRS to collect back taxes. When the agency issues a wage garnishment, it directs the delinquent taxpayer’s employer to deduct a predetermined amount from each paycheck and forward that amount to them.

I didn't file a tax return for a particular year. What implications might I face regarding back taxes?

If you didn’t file a tax return for a specific tax year, the IRS typically assesses a tax liability based on the information they have. This can lead to unpaid back taxes.

Over time, interest and penalties accumulate on this amount. If you expect a tax refund for that year, you might lose it. It’s crucial to file past-due tax returns and address any tax debts promptly to avoid further complications.

How does the IRS handle the collection of unpaid tax debts?

The Internal Revenue Service (IRS) sends notices or letters to inform taxpayers of their delinquent tax debt. If these initial communications are ignored, the IRS intensifies its collection efforts.

This can include filing federal tax liens, issuing a tax levy, or initiating wage garnishment. The longer tax bills remain unpaid, the more aggressive the IRS becomes in its collection methods.

Can you explain the difference between a tax lien and an IRS levy?

Certainly. A tax lien is a legal claim the IRS places on a taxpayer’s assets, like a bank account or property, due to owed taxes. It signifies the IRS’s right to the asset if the debt isn’t settled.

An IRS levy, on the other hand, is the actual confiscation of assets to cover the tax debt. For instance, the IRS can levy bank accounts, wages, or tax refunds to recover the unpaid amount.

I've heard about wage garnishment related to unpaid back taxes. How does it work?

Wage garnishment is a method the IRS uses to collect tax debts directly from a taxpayer’s income. When a wage garnishment is issued, the IRS instructs the taxpayer’s employer to withhold a specific portion of their wages, which is then forwarded to the IRS.

This continues until the debt is settled or other payment plans, like installment agreements, are arranged. Facing wage garnishment can lead to financial hardship, so it’s essential to address it immediately.

Are there any options or solutions for those struggling with significant tax debts?

Yes, the IRS offers several options for taxpayers. If you believe the assessed amount is incorrect, you can appeal. The IRS offers payment plans for those unable to pay in full, the IRS offers payment plans, including installment agreements.

Another option is the Offer in Compromise, where the IRS might accept a reduced amount to settle the debt. It’s also possible to negotiate penalties and interest under specific circumstances.

Consulting with tax professionals can clarify the best approach based on individual situations. If you have back taxes, call one of our experts at 866-234-9522. They can guide you through the process and get you back on track.

See If You Qualify In Minutes

If you are considering applying to the IRS Fresh Start Program, let our experts guide you through the processes. Give us a call at 866-234-9522 or submit your application below. Apply Now!