What to Do If…I Have Back Taxes

Tax laws often generate confusion even for relatively standard procedures. A misunderstanding in following tax law can result in major consequences that otherwise could have been avoided.

The potential for making errors is high and the penalty for those errors is even higher.

For this reason, most people turn to tax professionals for guidance when addressing their standard tax needs. However, sometimes out of the ordinary tax issues arise, like back taxes.

If you haven’t experienced receiving an IRS notice for back taxes, you’re likely unfamiliar with what this issue involves and how to resolve back taxes. Finding yourself on the receiving end of a back taxes notice can be worrying and confusing—let’s dive into what to do if you have back taxes. 

Understanding Back Taxes

It’s important to understand what back taxes really are; they aren’t a fine or penalty, but more akin to an overdue bill.

Confusion arises when you receive this IRS notice requesting a payment you believed you had already made. Unfortunately, if you’ve underpaid the amount the IRS deemed you as owing, didn’t file a tax return, or didn’t report all income for the year, you will find yourself with a back tax notice.

Back taxes can occur for any level of the tax payment hierarchy, whether local, state, or federal. If you owe it, you can trust the IRS to remind you.

How to Resolve your Back Taxes

If you’re the recipient of such an IRS notice, you’re probably wondering how to resolve back taxes in the most effective way possible. You have a few options for getting back on good terms with the IRS.

To resolve back taxes in the easiest and most immediate way, you can opt to pay the outstanding amount in full. However, if paying your back taxes in full is not possible, consider opting for one of the payment plans the IRS offers.

If You Don’t Settle Your Back Taxes

Even if you plan to resolve back taxes by paying through a payment plan, sometimes these plans are complex and tricky. It’s important to follow the terms of whatever repayment method you choose in order to avoid any penalties.

Your safest bet is to take your case to a tax professional who will be sure to handle it in the most effective way possible to avoid any further complications. 

Issues with back taxes can devolve into costly matters if not handled quickly and correctly. Back taxes can accrue interest and be subjected to penalty fees from 0.25% to 1%.

If your back taxes remain unpaid, the IRS will begin employing more forceful attempts to get their dues. A tax lien may be placed against any of your significant assets, such as homes or bank accounts.

A tax lien is essentially the IRS’ way of ensuring they get what’s owed, whether through direct payment or in the seizure of assets with equivalent worth. This lien will ultimately culminate in a levy, which means the IRS moves forward with seizing the assets they placed the lien against.

In the case of a delinquent taxpayer with no assets to seize, the IRS utilizes wage garnishment, meaning they instruct the individual’s employer to deduct money from wages to begin repaying the outstanding balance. 

Receiving a back tax notice can be jarring, but there is a clear path for dealing with this situation. The best method to resolve back taxes will always involve prompt action, whatever action is chosen. The IRS takes their payments seriously, so it’s best you do as well—consider approaching a tax professional to make sure you resolve back taxes in a way that fits your needs but also keeps the IRS at bay. 

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