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What To Do If You Can't Pay Your Tax Debt

Jan 2

The IRS expects you to pay your taxes on time, but if you can’t pay the full amount due, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. There are a variety of options available for those who cannot fully pay their tax debt.

The first step is to contact the IRS as soon as possible. The sooner you contact them, the more options will be available. You may also want to consider hiring a professional tax preparer or accountant to help resolve things with the IRS. They may be able to negotiate an installment agreement or payment plan that could help reduce what you owe.

If you are having trouble making monthly payments on your own, don't worry--there is an alternative available called an Offer in Compromise (OIC) which allows taxpayers with financial hardship or difficulty paying their tax debt to settle the amount owed for less than what they owe. The IRS will examine your financial situation and determine if you qualify for an OIC. However, it’s important to note that not everyone qualifies for an OIC and it can take a long time to be approved.

If none of these options are feasible, another alternative is a temporary delay in payment, referred to as “Currently Not Collectible” status (CNC). This status is granted by the IRS when a taxpayer doesn’t have enough money or assets available after paying living expenses in order to make payments toward their tax bill. CNC status can last up to three years at which point all collection efforts must cease until the taxpayer is able to resume payments. It’s important to note that interest and penalties still accrue during this period so it won’t reduce what is owed but will simply postpone payments until a later date when the taxpayer can afford them.

What Are The Consequences Of Not Filing Or Paying Your Taxes?

Do not neglect to file your taxes or pay them if you find yourself in a tough financial spot; the government has the power to confiscate your assets without hesitation. The best course of action is to try and make good on any income tax liability that may be due.

In the worst-case situations, you could even be sentenced to jail. Several circumstances can result in fines and additional interest charges; two of the most common are submitting your tax return after its due date or not paying taxes on time.

Filing Your Taxes Late

If you're unable to submit your tax return by the due date (April 15th) then it is imperative that you promptly file Form 4868 with the IRS in order to obtain an extension of time. It's important for taxpayers to recognize, however, that this form does not grant them extra time when it comes to paying their taxes - only filing one's returns can be extended. As such, any money owed must still be submitted on or before April 15th without fail.

If you miss the due date (or extended deadline) to file your tax return, you are subject to failure-to-file penalties. These fees will accumulate based on how late your submission is, so it's best not to procrastinate!

Unpaid taxes are charged an interest rate of 5% per month, or part thereof, with a maximum penalty cap of 25%, reached after five months. Avoid this fee by filing your tax returns in a timely manner!

If you do not file your return within 60 days of the due date (or extended due date), then a minimum failure-to-file penalty will be assessed, which is either $435 or 100% of your total tax liability - whichever number is lower. This provision applies to all returns with a due date on or after December 31, 2020.

Clearly, filing late is never a rewarding option - with or without an extension. Even if you can't cover your tax bill on time, it's essential to submit your return anyway so that failure-to-file fines plus interest don’t accumulate alongside the existing failure-to-pay penalties.

Paying Your Taxes Late

Don't be tempted to file your taxes without paying the money you owe. If payment doesn't arrive on time, interest and fines will begin to accumulate rapidly on the balance due.

The interest rate for failure to pay is the federal short-term rate plus 3%. This will be compounded on a daily basis starting from the due date, even if you have requested an extension of time to file your return.

If you still owe taxes and haven't paid them, the failure-to-pay penalty rate is 0.5% of that debt per month until it reaches a maximum of 25%. And if you didn't even file your tax return yet either? Both penalties are applicable in this case: up to 5%, with 4.5% for failing to submit and 0.5% for not paying what's due on time! So don’t wait—take action now before the fees pile up any higher!

If you don't make your payment or file on time, the most severe penalty can be a whopping 47.5% of what you owe in total taxes— with 22.5% for late filing and 25% for not paying by the due date after 50 months have gone by!

If you neglect to address the letter from the government regarding your unpaid taxes, they may take further action. The IRS will then file a Notice of Federal Tax Lien which serves as an official warning to creditors that their claim on your property has precedence over other claims or liabilities. In order for them to secure the government's interest in what you own, this lien is placed on all pertinent assets (including personal property and real estate).

If you fail to pay off your debt, the IRS has no choice but to take action with an IRS levy. This legal step allows them to seize any of your assets in order to successfully settle what is owed in taxes. A garnishment through your employer, seizure from a bank account, or even selling property such as a car or house could all be possible forms of levies used by the IRS. Don't let it come down this far - ensure that tax debt is paid on time and avoid experiencing these dire repercussions!

The IRS will not hesitate to take legal action if they find you guilty of tax evasion. Tax avoidance is a federal offense, and upon conviction, can result in up to five years in prison. Don't let your negligence lead to severe consequences - pay what's due on time!

If you are unfortunate enough to receive a notification from the IRS for late payment of taxes, it is best to act swiftly and take decisive action. While this last step should only be necessary in cases with large unpaid balances due to tax evasion, no one can predict what situation may arise - so make sure that you create a plan with the IRS straight away in order to quickly pay any outstanding payments.

The Bottom Line:

If you don't file your taxes on time and/or pay the amount due, then expect to incur penalties from the IRS. Fines for not filing or submitting late range from $435 up to a maximum of 47.5% of your total tax liability. If you neglect to pay what is owed, the rate rapidly increases from 0.5% to 25%. Make sure you file your return and pay the necessary taxes on time, or else face potentially severe consequences from the IRS. In any case, it is always best to consult a tax professional if having difficulty with filing or understanding the regulations surrounding taxation. Doing so can help ensure that you avoid excessive fines and penalties from the IRS.