Simply put, back taxes are taxes that still have a balance due or were only paid partially. Taxpayers can 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, just as taxpayers disregarding their back taxes is not uncommon. However, the consequences of disregarding an overdue tax liability can be severe. With more and more resources being allocated to the IRS for enforcement, it is going to be increasingly difficult for taxpayers with back taxes to remain unmolested by the world’s most aggressive and powerful collection agency.
How to Resolve Your Back Taxes
Paying your taxes back in full is the best possible action you could make. Taking advantage of the IRS’s tax repayment plans is similarly a viable option.
Although new tax repayment initiatives have been 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. They can help taxpayers determine 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 several consequences that the IRS places upon taxpayers who do not repay their back taxes.
Assessment of Interest and Penalties
Back tax balances are compounded over time due to interest and penalties. It is not unusual for these additional charges to total as much as 50% of the original tax liability.
Interest – The IRS considers a back tax balance to be the equivalent of a loan from them, so they end up charging 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 will 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 of 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 many other assets. A levy is one of the final steps the IRS will deploy in its attempt to collect back taxes. It 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, the IRS.
In summary, here are a few key points you can take away from the information above:
- 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 of 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 our process and get you financially stable again.
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