What are Back Taxes?
Simply put, Back Taxes are taxes that still have a balance due or were only paid partially. It is possible for taxpayers to have back taxes at the Federal, State, or even Local levels. They can acquire and gain interest at a constant rate.
Given today’s economic climate, unpaid taxes are not uncommon, however, taxpayers disregarding their back taxes is also not uncommon. The consequences of disregarding an overdue tax liability can be severe and, with more resources being allocated to the IRS for enforcement, it is going to be increasingly difficult for taxpayers who have back tax balances to remain under the radar.
How to Resolve Your Back Taxes
Paying your taxes back in full is the best possible action you could make, if not at the very least, taking advantage of the IRS’ tax repayment plans will only help you.
Although new tax repayment initiatives have been recently implemented, few get accepted because of their complex and confusing criteria.
For this reason, a taxpayer who owes back taxes may be best served by contacting a tax professional for help in determining which option will offer the most effective resolution for their specific set of circumstances.
What Happens If You Don’t Repay Back Taxes?
There are a number of consequences that occur to taxpayers who do not repay their back taxes.
Assessment of Interest and Penalties
Back tax balances are compounded over time by the addition of interest and penalties to the extent that 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, which changes every three months, 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 the process of collecting back taxes with passive techniques such as the issuing of 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 ensure the collection 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 that has 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 in the 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 to forward that amount to them.
In summary, here are a few key points you can take away from this:
Back taxes are taxes that have not been paid that need to be.
Back taxes can lead to interest and retributions and usually have deadlines attached to them.
Further negligence to your back taxes can lead to wage garnishment, tax liens, levies, or even criminal charges.
What To Do Next
If you have back taxes call one of our experts at 833-419-RISE(7473). They can guide you through the process and get you back on track.
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