Back taxes are taxes — typically from the previous year — that were not paid at the time they were due and remain outstanding.

You can owe back taxes for a lot of reasons, such as: 

• Filing a return and failing to pay the amount owed
• Failing to report all earned income during the tax year
• Not filing a tax return altogether

These actions can be intentional — like deliberately underreporting income — or unintentional, like not designating enough money to be withheld throughout the year.

If left unpaid, back taxes can accumulate significant interest and penalties over time.

To avoid getting penalized for not filing, we always advise filing your returns on time even if you can’t pay the balance, instead of not filing at all.

Here are the two most common penalties and what they’ll cost you:

• Failure to File: Owed interest plus a 5% penalty for each month the return is late, up to 25% of the overall tax bill. The IRS can even submit a substitute return on your behalf, which may not include any credits or deductions that would offset the amount you owe.
• Failure to Pay: Owed interest, plus a 0.5% monthly late fee.

Depending on the circumstances, the IRS may take extreme measures to get you to pay, such as garnishing your wages, placing a lien on your property and more.

While owing back taxes can be scary, it’s best to be proactive when it comes to dealing with the IRS. Here are some approaches and strategies that can help to resolve past-due taxes:

In some cases, you can set up an IRS payment plan, also known as an installment agreement. The terms and conditions of the agreement will depend on the details of the situation, including how much you owe and how long it will take you to pay back the balance in full.

You can also request an extension to pay the full tax balance. There is no fee to request an extension, but the IRS will charge interest and a late payment penalty of 0.5% per month on the unpaid balance.

The IRS offers various options for taxpayers in hardship situations. This includes the Offer in Compromise and Currently Not Collectible status. To qualify, you will have to prove that paying the tax would cause significant financial hardship, according to IRS standards.

Your best option is to work with an experienced tax professional to negotiate with the IRS on your behalf. Navigating the ins and outs of a bureaucratic organization can be quite confusing and messy, and you could wind up paying more than necessary. A seasoned tax expert can guide you through the process and provide a clear path to financial freedom.

Getting a letter from the IRS is never fun, and it’s even less fun when it’s a collection letter. But getting sent to collections doesn’t have to be the end of the world.

Collections is the process the IRS has for notifying you of outstanding tax balances and encouraging you to pay them.

You will receive a statement from the IRS telling you the amount that is due, along with any accrued interest or penalties, and asking for a complete payment. Receiving a tax bill also starts the clock on the 10 years the IRS has to legally collect the funds before the statute of limitations expires. After 10 years, you typically don’t have to pay.

If you don’t pay the IRS what it is owed, it has the authority to garnish your wages, or even seize your property and sell it in order to pay off the balance. 

But don’t panic — a qualified tax professional can help put a hold on future IRS collections or release a garnishment or levy. They can also help you take care of your problem through options like:

• Offer in Compromise
• Currently Not Collectible Status
• Affordable Payment Plans

If it’s been a while since you filed a tax return, the thought of getting caught up can be daunting. Luckily, it’s not too late to get back on track, and even earn some extra cash.

The main reason you should file your taxes? Because you have to.

It’s illegal not to file a tax return with the IRS, even if you don’t owe anything. You could actually face criminal charges up to six years after the return is due, and the IRS can collect debt from returns even older than that.

Filing on time every year also helps you avoid monthly 5% penalties and accrued interest that will put you even further in the hole. Plus, if you’re self-employed, failing to file means you’ll miss out on earning credits toward Social Security retirement or disability benefits.

But even if you haven’t filed for a few years, it may not be too late to recoup some cash. You can still receive tax refunds if you file within three years of the return’s original due date.

Typically, the IRS only cares about tax returns from the previous six years, so first, focus on that time frame before anything else.

Next, assemble the documents you’ll need to file from those previous years. You can even contact the IRS to request copies of your wage and income transcripts, which will help you get information from your W-2, 1099 or other tax documents.

Lastly, we recommend working with a tax expert who can research your exact situation, help locate any missing paperwork and set up a plan so you never miss Tax Day again.

Garnishing your wages is one of the most common ways the IRS can force you to pay your federal tax bill.

This process allows the government to take a specified amount of money out of your paycheck every pay period until your debt is paid off. Your employer is required by law to garnish your wages if a garnishment is in place, but it cannot fire you because of the garnishment.

The easiest way to stop having your wages garnished? Pay your tax bill in full or set up a payment plan with the IRS. However, most people who are facing garnishment are unable to afford these options.

There are other alternatives that can allow you to get your paycheck back. These include making an Offer in Compromise, in which you work out a deal with the IRS to pay a smaller sum than you originally owed, or claiming financial hardship if your wages are garnished.

Having your wages garnished is a stressful experience, but having a qualified tax professional on your side can make all the difference when you are up against the IRS. Let us get you in touch with a tax pro who can get you the best possible outcome and save you the most money.

When you are in debt to the IRS, one of the most extreme ways the tax agency can ensure that you pay is by levying your property. A tax levy is when the IRS legally seizes your assets in order to settle your debt.

If you haven’t paid your tax bill after receiving a Notice and Demand for Payment from the IRS, the agency will enact a levy. You will know a levy has been enacted on your assets because the IRS will also issue a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing at least 30 days before the levy goes into effect.

There are different kinds of levies that can be authorized, depending on your situation. A bank levy is when your bank places a hold on your funds at the IRS’ request, deducting them 21 days later to pay your debt. The IRS may continue taking funds from your account until the debt is paid off.

Another type of levy is property seizure, in which the IRS claims your property, sells it, and applies the proceeds to your debt. Cars and homes are two of the most common pieces of property the IRS seizes.

But the IRS is not limited to taking money from your bank accounts or selling your property — it also has the power to seize your life insurance, retirement funds or passport to force you to pay.

Having your assets levied is obviously a difficult position to be in, but it’s not an impossible situation to escape. The best way to get rid of a levy is to pay your IRS balance in full, after which the levy will be removed in 30 days. But this is not doable for many people.

Another great option is getting in touch with a dedicated tax professional who can help you weigh your options, which may include setting up a payment plan, filing an appeal or proving financial hardship. A levy doesn’t have to ruin your finances, and an experienced tax pro can help you get rid of levies once and for all.