What Will Happen If I Do Not Pay Taxes

by Finance Published on: 23 June 2021 Last Updated on: 14 August 2021


If you happen to be an employee residing within the United States who has received a Form W-2 tax form and had your employer withhold sufficient taxes on your behalf, chances are you’re not required to pay anything on the tax day. On top of that, you may even receive a refund from the IRS.

For many others in the US, this is not the case, especially if you are self-employed. Some taxpayers may still owe a bit (or a lot) of taxes from the year before if they did not pay enough estimated taxes throughout the year or did not have sufficient withholding.

People who receive a tax bill like this may be shocked to find out that they owe additional taxes and may not have the funds on hand to pay the outstanding tax bill in full.

This situation does not feel great, but it is never helpful to start panicking. There are several things that can be done to pay off your obligations to the IRS without draining your bank account.

Always File Your Taxes Regardless Of Whether Or Not You Have The Money To Pay

Always File Your Taxes Regardless Of Whether Or Not You Have The Money To Pay

Before diving into a conversation regarding what actions you should take regarding a bill you cannot pay, we should begin by saying this: Even if you cannot afford to pay, you need to file your return by the deadline.

If you fail to do so, the IRS could charge you a failure-to-file timely penalty, which will only make that dreaded bill even larger.

It is also critical that you contact the IRS after you file so you can inform IRS that you are unable to fully pay the tax due in full and you are in need to set up a payment plan for your outstanding tax balance. If the IRS does not hear anything from you and they do not receive full payment, it is possible that they may charge you a late payment penalty, pre-payment tax penalty which in turn will cause your tax bill to grow much bigger.

The IRS Is Willing And Able To Work With You

Some good news for those who owe the IRS for back tax years: The IRS, despite their reputation, is not as heartless as many assume them to be. The IRS is likely willing to work with you to establish a payment plan for your outstanding tax balance.

It is also possible that you may qualify for a short-term payment plan, which can provide you with up to 180 days in extra time to pay the balance off in full. There is no fee necessary to apply for this option, although you will be required to pay accumulated interest and penalty if you are behind on your bill.

It is recommended that you use the Online Payment Agreement application (also referred to as the OPA application) or contact the IRS by phone to set up a plan like this.

Make Monthly Payments

Make Monthly Payments

If you are unable to pay off your entire bill even within the allotted 180 days, you can seek further relief from the IRS. You might qualify for a monthly payment plan that will allow you to make payments over a longer period of time.

In order to set up something like this, you will need to pay a User Fee, although qualified lower-income taxpayers may be able to get this fee waived or reduced. You also will have to pay monthly accumulating interest and additional penalties until the balance has been paid in full.

There are few different methods to pay for your back tax liability through an installment agreement. You can either use the aforementioned OPA application, fill out and mail Installment Agreement Request Form 9465 or call the IRS to set up a payment plan over the phone.

Apply For An Offer In Compromise

If you cannot afford to pay off your entire tax liability through an Installment Agreement or if it may cause severe financial hardship to make monthly payments to IRS, you have the option to apply for an Offer In Compromise (commonly referred to as an OIC).

With an OIC, you and the IRS will come to an agreement to settle your tax debt for a lump sum amount less than the total tax amount owed. If accepted, the OIC will eliminate some or a significant amount of your outstanding IRS balance.

After submitting an OIC to the IRS, the IRS will analyze your financial circumstances thoroughly before coming to a decision regarding your application. Some of the things that the IRS will look at are your income and expenses and the equity that you have in your assets.

If the IRS determines that you have no available assets and it is very unlikely that you will be able to afford to pay off the entire tax balance in full within the allotted periodic payments, the agency will most likely consider an OIC to settle your back tax liability.

Keep in mind that this option is not possible for all individuals, you should visit the IRS’s website to get a better idea of whether you qualify.

Temporary Delay On Collection

Temporary Delay On Collection

If you find yourself in a situation where you are forced to choose between paying rent for your home and office or making monthly payments to IRS for your back taxes, the Internal Revenue Service might be willing to suspend the collection of the balance until you’re able to pay.

The IRS will place your account within their records as “currently not collectible” up until you are able to pay without too much sacrifice. Usually, the Currently Not Collectable status remains on your account for two years before IRS revisits your financial situation.

Do not mistake this as the reduction or elimination of the debt. The IRS will review your financial standing every so often to see if you are able to make monthly payments to pay off your balance. In addition, you should be aware that you will continue accumulating penalties and interest on top of your debt until your tax balance is paid in full.

Always Pay Your State Taxes First

If you happen to owe income tax to the federal government, you may owe a bit to your state taxing authority as well. It is always a good idea to pay off your balance in full, or at least to the state, if possible since some states have more aggressive collection actions such as revoking your professional and/or driver’s license.

No matter how or when you decide to pay both your federal and state taxes, make sure you do not ignore this issue. If you do, the debt will most certainly follow you and continue to worsen.

Tax authorities are willing to work with you to come to a solution. It is typically a wise decision to look into appointing an attorney or have a legal representation to assist you with your back tax matter. You can find excellent help by speaking with the tax advisers at Coast One Tax Group.

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Ariana Smith is a blogger who loves to write about anything that is related to business and marketing, She also has interest in entrepreneurship & Digital marketing world including social media & advertising.

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