What to Do If You Owe Back Taxes
File any missing tax returns, even if you cannot pay, because the failure-to-file penalty is much larger than the failure-to-pay penalty. Then choose a payment option: pay in full, a short-term extension, or an installment agreement, which many people can set up online. If you truly cannot pay, ask about currently not collectible status or an offer in compromise. Respond to every IRS notice.
Owing the IRS is stressful, but it is one of the most common tax problems, and there are standard ways to resolve it.
Step 1: File every required return
Unfiled returns create the biggest penalties and can lead the IRS to prepare a substitute return without your deductions. The failure-to-file penalty is generally 5% of the unpaid tax for each month or part of a month the return is late, up to 25% (IRS). The failure-to-pay penalty is generally 0.5% per month, also up to 25% (IRS). Interest accrues on unpaid tax and penalties.
Step 2: Find out what you owe
Check your IRS online account for balances, notices and payment history, or request account transcripts.
Step 3: Choose a payment option
| Option | Who it fits |
|---|---|
| Pay in full | Avoids more interest and penalties |
| Short-term payment plan | You can pay within 180 days |
| Long-term installment agreement | Monthly payments; many individuals who owe a qualifying amount can apply online without detailed financial statements |
| Currently not collectible (CNC) | You cannot pay basic living expenses; collection pauses, but interest continues |
| Offer in compromise | Settle for less if you cannot pay the full amount; see offer in compromise |
Source: IRS payment plans and offer in compromise pages.
Step 4: Ask about penalty relief
First-time abatement or reasonable cause relief may remove some penalties if you have a clean history or a good reason such as serious illness.
What happens if you ignore it
The IRS sends a series of notices, then may file a federal tax lien, levy wages or bank accounts, take refunds, and in serious cases certify debt to the State Department, which can deny or revoke a passport. Ignoring the problem limits your options.
How long the IRS can collect
Generally 10 years from assessment, with some events pausing the clock. See how long the IRS can collect.
State taxes
States have their own collection programs and payment plans; contact your state tax agency too.
Beware of "tax relief" ads
Some companies charge large upfront fees for results you could get yourself. Check credentials and avoid guarantees.
For large balances, unfiled years or business taxes, a tax lawyer or other credentialed tax professional can negotiate with the IRS.
Sources
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This article is general legal information, not legal advice, and reading it does not create an attorney-client relationship. Laws differ by state and change over time; talk to a licensed attorney in your state about your situation.