There could be a few instances where you could miss your tax filings. These taxes which you didn’t pay on time in a given year are referred to as back taxes. These back taxes cost you interest and penalties. If left unattended for a long time these back taxes might invite IRS actions such as irs wage garnishment, tax liens, bank account levies, etc. These actions by the IRS not only burden you financially but also spoil your reputation at the job.
So, don’t let your delayed tax payments affect your financial future. The IRS offers various payment options for taxpayers to pay their back taxes. Here, in this post, we’ll look at the many alternatives available to taxpayers for paying back taxes.
Table of Contents
Ways to Fix up IRS Back Taxes
1. Installment Agreement
This is the most common approach for paying your back taxes. The short-term installment plan and the long-term installment plan are the two installment plans offered by the IRS which enable taxpayers to file back taxes easily. The taxpayer can choose any of the installment plans based on his financial capacity.
The taxpayer can negotiate with the IRS about monthly installments. The total back taxes can be paid to the IRS in monthly installments ranging from a period of 120 days or more.
The taxpayer’s outstanding back taxes still attract penalties and interests. This payment option allows users to minimize the monthly burden as well as pay back taxes at regular intervals. This is also a cost-effective method for taxpayers.
2. Currently Not Collectible (CNC) Status
Financially distressed taxpayers can opt for this method. For this, you have to submit a Collection Information statement in which you have to submit your monthly earnings and expenses. The IRS after evaluating your financial situation puts you under Currently Not Collectible (CNC) status.
This status gives you temporary relief from paying your back taxes till your financial status improves. The IRS does not use levies, liens, or wage garnishment procedures against anyone with CNS status. However, the interests and penalties on your back taxes keep increasing thus raising your liability. Once you are financially capable you need to pay all your back taxes to the IRS.
3. Approaching A Tax-Relief Company
If you find the entire process of filing a return, and choosing a payment option for back taxes tedious then it is advisable to take professional help. This would lighten the load of the entire procedure and provide a clear image of how to handle the filing back taxes process. However, it is advisable to approach only such tax relief companies that are genuine and offer back taxes help at minimum cost because it is not logical to burden yourself with high fees in addition to the tax payments.
4. Penalty Abatement
The penalties on back taxes are huge and are often difficult for the taxpayer to pay them. However, the IRS offers penalty abatement, if the taxpayer submits a genuine and valid reason why he/she was unable to pay tax on time while filing back taxes. Though the amount due as back taxes will not reduce by applying for penalty abatement, there might be a decrease or removal of penalties on the back taxes.
This also reduces the financial burden on the taxpayer significantly. Death in the family or a natural disaster are a couple of situations that the IRS will consider qualifying for the penalty abatement program.
5. Offer In Compromise
The IRS accepts Offer In Compromise when a taxpayer is ready to pay a gross amount which is usually less than the debt amount. The remaining amount will be discharged by the IRS. But the IRS will not agree to an Offer In Compromise easily.
It will first conduct a background check of the applicant and his/her financial status. If the IRS genuinely believes that the extraction of the entire back taxes amount from the taxpayer may cause him financial distress, then it agrees upon the Offer In Compromise (OIC).
However, once agreed the taxpayer should pay the entire OIC amount in the given time without any delay which might attract additional penalties by the IRS. one should make a note that Offers In Compromise is rarely agreed upon by the IRS. So, it would be wise if this option is opted at last by the taxpayers to file back taxes.
6. Innocent Spouse Relief [H3]
This allows the spouse of a joint account holder to file for complete tax debt forgiveness. The IRS accepts innocent spouse relief to those who produce proof that they are the spouse of a taxpayer who has back taxes and is not aware of any of their partners’ back tax filings. This gives complete relief to the spouse from the back taxes payment.
7. Fresh Start Program
This program allows taxpayers to pay their back taxes in an orderly way. This program includes installments, simplification, thresholds, withdrawal of tax liens, and other mechanisms for taxpayers to pay their pending tax amount. Under this program, the dollar threshold is increased to $10,00 for tax liens.
The IRS and the taxpayer can enter into a direct debit installment arrangement that permits the IRS to routinely deduct precise sums from the taxpayer’s account as an installment. The IRS will remove the tax lien even before the whole amount is paid if the taxpayer pays these installments over a while. This program was started in 2011 and is a great option for taxpayers to reduce their back taxes burden.
Conclusion
It is often hard for taxpayers to file their tax returns on time taking into account the ongoing recession across the globe due to the pandemic. But, it is not logical to pile the back taxes as it increases the tax burden on the taxpayer and attracts regressive measures from the IRS. So, even if it is hard to pay all your back taxes, you should first opt for any of the above methods which are best suited to your needs and try to resolve your back taxes problem immediately.