Why So Many Americans Owe Money To The IRS (And How To Get Out Of It)
In 2021, over 8 million taxpayers owed the IRS back taxes. And, due to the current economy, this number is only predicted to increase. So, why do so many taxpayers owe money to the IRS? And, more importantly, what do you do if you owe back taxes?
5 Main Reasons For Owing The IRS Money
Owing money to the IRS is more common than you’d think and back taxes are shockingly easy to accumulate.
Unexpected life circumstances, family emergencies, and natural disasters top the list for events that could postpone you filing your tax return. However, what are the concrete tax return mistakes that actually impact your taxes?
1. Failure To File
The main reason why people end up owing the IRS money is because they don’t file their tax return at all!
There are many reasons why some taxpayers fail to file, including a loss of important tax documents or different priorities.
A common scenario we see here at TaxRise is taxpayers go through a tragedy — such as a house fire or natural disaster — and essential tax documents are lost. Though you can reclaim important government identification, it does take a lot of time and energy to replace your vital records. This leaves many of our clients in a tough situation where they put off filing their taxes for years.
Luckily, there’s a way to dig your way out of this situation.
2. Under-Withholding
If you incorrectly fill out your W4 form, then you may end up owing the IRS money. Since some taxpayers don’t realize that they under-withheld, they assume that all of their taxes are up to date.
This is an unfortunate situation many Americans find themselves in.
3. Failure To Pay Estimated Tax
Tying into the point above, if you owe over a certain amount in unpaid taxes, the IRS may hit you with a penalty for underpayment of estimated tax. So, not only will you have to pay the taxes you already owe, but pay the penalty plus interest.
The U.S. government requires Americans to consistently pay their taxes during the year, which is why failing to pay taxes on earned income might result in a penalty.
Several factors are taken into account when calculating the underpayment of estimated tax penalty.
Sometimes, Americans only catch up on the portion of taxes they originally owed and forget to pay the penalty for the underpayment of estimated tax.
4. False Tax Return
Filing a tax return that you know is incorrect in some way is a federal crime. You don’t face prison time for unknowingly making a mistake or incorrectly filing your tax return. Your intent matters.
An intentionally fraudulent tax return, also known as a false tax return, will put you in debt with the IRS. The punishment is up to $100,000 dollars in fees and the possibility of up to 3 years in prison.
5. Tax Return Changes
If any big life changes happened, such as your children not being dependents anymore or changes in the tax code could impact how much you should be paying in taxes.
Make sure to double check you’re filling out your taxes correctly so that you don’t end up with a letter from the IRS at the end of the tax year.
How To Find Out If You Owe Money To The IRS
The IRS doesn’t hesitate to come after you if you owe them money. If you owe money to the IRS, you’ll receive an official letter from them. Please note that the IRS will never contact you via phone, email, or social media.
If you’re behind on your taxes, the IRS Fresh Start Program will be able to help you get your finances back on track.
If you don’t know where you stand with regards to taxes, TaxRise offers a free tax consultation where we take a holistic view of your finances and find out exactly how much you owe to the IRS. After our tax investigation, we also recommend the best possible resolution program for you.
What To Do If You Owe Back Taxes?
If you owe back taxes, it’s important to act as soon as possible. Though tempting to push it off, it will only hurt you in the long run as penalties and interest rates will start to accumulate.
If you don’t know where to start or don’t want to do it by yourself, check out our free tax consultation! We’ve helped thousands of taxpayers resolve their tax issues and erase their tax liability from the IRS.
The Takeaway
Owing money to the IRS is a lot more common than you think. You aren’t alone.
Work with a professional tax relief company to get your finances in order. Check out TaxRise’s free tax consultation to determine if you have any tax debt and what programs you could qualify for!
