What are Back Taxes? How Much Do I Owe & Can I Avoid Paying Them Back?
Are you having trouble with IRS back taxes? Still need to file your overdue taxes, or just need to pay them off? Thinking about taking advantage of the IRS Fresh Start Program, or filing an Offer in Compromise letter?
This page will teach you how to Resolve Your IRS Tax Problems, guiding you through the process of negotiating with the IRS and finding an effective IRS settlement as quickly, and cheaply, as possible.
Whether you choose to pursue complete IRS Tax Debt Forgiveness, or you end up negotiating for an IRS Tax Debt Settlement, my goal for creating this site was to help you deal with your tax issues without having to resort to paying anyone to take care of it for you.
Get Help Filing IRS Back Taxes
Millions of Americans find themselves unable to afford their Federal taxes each year, resulting in billions of dollars of past due IRS back taxes.
What are back taxes? Back taxes are taxes owed to the IRS, after the deadline for payment has passed.
Fortunately, the IRS has become slightly more lenient about dealing with back taxes, and made it easier than ever before to dig yourself out of debt.
Why Should You Deal With IRS Back Taxes Today?
The IRS really wants you to pay your back taxes NOW, because their entire mission is to collect as much money as possible, so they do all sorts of things to prevent you from putting it off.
The IRS also makes it pretty clear that there are significant benefits to dealing with your back taxes situation immediately, as you can do things like claim your refund, prevent the loss of Social Security benefits, and avoid problems obtaining loans.
Claiming Your Refund
According to the official IRS website’s page on filing past due tax returns (AKA “back taxes”), failing to file a tax return risks losing your eligibility to claim a tax refund.
The actual specific rules on the matter are that you’ve got to file your tax return within 3 years of the due date, otherwise any return that you’re entitled to is essentially forfeited.
The IRS won’t let you claim any tax credits after 3 years have lapsed either, so if you were hoping to claim an American Opportunity Tax Credit, or an Earned Income Credit, you’d better get those back taxes taken care of before it’s too late.
Protecting Your Social Security Benefits
Failing to file your IRS tax return might mean sacrificing your future Social Security benefits, and while that may not scare Millennials (who don’t expect Social Security to still be around when they retire…), anyone older looking to eventually retire and live comfortably will want to make sure they file a return each year.
This is especially important for people who are self-employed, and who don’t have any other source or record for their taxable income, because only the IRS tax return tells the Federal Government that you’ve earned some income, paid applicable taxes on it, and should be credited toward your eventual Social Security disbursement.
If you want Social Security, or if you rely on Disability benefits or any other form of Federal Government Assistance (like Student Loan Debt Relief, Welfare, Food Stamps, or anything else), then it’s especially important that you complete a tax return each year.
Preventing Problems Obtaining Loans
Another valid reason for filing your return each year is that anyone who hasn’t filed their returns is likely to run into problems when trying to exercise credit and take out a loan.
Want a home mortgage, or a car loan? If you haven’t filed your tax returns, it’s going to be exceptionally difficult to get approved.
When it comes time to get that loan, or even refinance an existing loan, one of the first things the bank or lender will ask for is a copy of your previous years’ tax returns.
If you haven’t filed, then you won’t be able to provide that copy, and there’s virtually no way that the lender’s underwriters will approve your application for the loan.
Securing Access to Federal Financial Aid
Finally, if you’re looking to take advantage of any Federal Financial Aid programs, like Student Loan Debt Forgiveness Programs, then you’re going to need to file a tax return each and every year.
Virtually every Federal Financial Assistance Program requires you to provide a copy of the prior years’ tax return, so that they can determine your eligibility for assistance, so if you haven’t filed, then you won’t be able to access the benefits.
Pretty much anything you do that involves any form of financial services, financial relief or financial transaction is going to go smoother if you’re current on your taxes, so it’s not a good idea to ignore your tax liabilities and fail to file.
What If I Can’t Pay My Taxes Fully?
Oftentimes, people end up with “back taxes” because they can’t afford to pay the tax bill on time, and so instead of filing and paying part of it, they simply ignore it completely.
However, the IRS recommend avoiding this problem (and the resulting penalties, interest, and additional fees that get tacked on for failing to respond), by requesting an extra 60-120 days for repayment.
If you’ve ever heard of filing for a tax extension, this is essentially all that is – and whether you request one because you couldn’t get everything filled out in time, or because you didn’t have the money, doesn’t matter; you’ll get the extension as long as you request one in time.
To request an extension for you taxes, contact the IRS directly by calling 1-800-829-1040, or use their “Online Payment Agreement” application.
Two other ways to lesson the tax blow and get some time to save up the cash for your tax bill are to request an installment agreement (which allows you to break your large payment up into a series of smaller ones), or file for an Offer in Compromise (which allows you to write-off some of your debt as long as the IRS agrees to your compromise offer).
No matter how much you owe, or how late you think you’re going to be, it’s much better to proactively file for one of these extensions or debt reduction programs than it is to simply ignore your tax bill.
The IRS is typically pretty good about working with people who are willing to admit that they have a problem, and seek a resolution. But for those who try to skip filing and paying altogether, things don’t often go down so painlessly.
Can I Refuse to File?
You can definitely refuse to file your tax return, but eventually, that decision will come back to bite you.
The IRS has a long memory, and with all the negative issues related to failing to file a tax return, the back taxes penalties, fees, and other issues will likely make it far worse than simply biting the bullet and filing your taxes when you should have.
At some point, the tax man will come calling, and you’ll be forced (in one way or another) to pony up the cash. Whether this comes in the form of wage garnishments, social security garnishments, liens on your assets or property, it’s going to happen eventually.
What Happens If I Refuse to File?
If you do choose not to file, then the IRS is doing to send you a letter called a “Notice of Deficiency”, which they also refer to as a “90-day letter”, or officially, as IRS Form CP3219N.
This letter will propose that you go through a tax assessment to determine just how much you actually owe, and it will give you 90 days to file your past due return or file a petition asking for a longer time period or explaining why you haven’t, or shouldn’t, have to file on time.
And this letter is essentially your last chance at admitting you’ve got a problem, owning up to it, and working with the IRS to ensure that you don’t face any form of penalties or problems.
Responding to CP3219N, the IRS “90-Day Letter”
When you receive the IRS “90-Day Letter”, you need to respond or you’re going to be in for a world of financial hurt.
If you don’t respond to the 90-day letter, then the IRS is going to do the proposed tax assessment without you, basically handling your return on your behalf, and essentially maximizing the amount you owe, while minimizing any benefits, credits or deductions that you might be eligible for.
In a nutshell, failing to respond to the 90-day letter is going to lead to the worst case scenario, where you owe as much taxes as the IRS can possibly come up with, and you get as few credits as they can get away with offering.
If you notice that something in the 90-day letter is incorrect, then you’ll need to contact the IRS to correct the information and get your assessment completed properly. Fortunately, they make it relatively easy to do this, and you have three options for restitution:
- Calling the IRS at 1-866-681-4271 to tell them directly that something was incorrect
- Calling the “Payer” was that reported your income incorrectly (the person who filed a wrong W-2 or 1099 form that over-reported your income and requesting that they file a corrected version of it(/li>
- Filling out your past-due tax return and sending the correct information in when you do file it
If you fail to respond, at all, to the 90-day letter, then the IRS is going to go ahead and file a “Substitute Return” on your behalf, which again, makes things as bad as possible for you by maximizing your reportable income and minimizing your possible deductions and write-offs.
The IRS “Substitute Tax Return”
Since you didn’t deal with the 90-day letter and the IRS did their own tax assessment, their next step is to complete your “Substitute Tax Return” for you, which is going to be a very bad thing for you.
You’ll need to review the Substitute Return to see what’s right and wrong about it (just like you should have done with the original Tax Assessment), and then you can respond by filing your own completed return, which you should have done earlier anyway.
See how this process works? The more you delay, the worse things get for you – which is why I advocate for dealing with your back taxes immediately, even if you are certain that you can’t afford to pay for them quite yet.
When you file your corrected return, make sure to take advantage of the credits, deductions and exemptions that you’re eligible for, which should significantly reduce your tax liabilities, and the IRS will automatically adjust the amount you owe them in response to your completed return.
The IRS Tax Bill
If you really want to push the envelope, and you ignore the IRS’s Substitute Tax Return, then you’re going to get sent a tax bill stating how much you owe.
This tax bill is going to be your last chance to make good on the debt before the really bad stuff starts to happen, so in my opinion, it’s really your last chance at getting yourself out of a sticky situation before things go nuclear.
If you ignore the Tax Bill, you’ll get sent to Collections and Enforcement, which is the true boogieman that everyone who fears the IRS hopes they’ll never have to face.
IRS Collections and Enforcement Actions
Should you be sent to collections or enforcement, the IRS is going to start coming after your assets wherever they can find them.
This won’t be much of a problem if you get paid under the table, live off the grid, and basically don’t exist except on paper, but if you’re like most Americans who rely on Credit Cards, Bank Accounts, Electronic Paychecks and the rest of modern society’s financial services, then you’re in for a truly terrible time.
The IRS is ruthless about pursuing the funds they feel they’re owed, so if you fail to respond to the 90-Day Letter, Substitute Return, and Tax Bill that’s sent, then you’re in for a world of economic hurt.
What can the IRS do to collect the money they think you owe? Anything and everything in their power, from seizing assets, to garnishing your wages, to confiscating your bank account to placing a lien on your property.
Are you used to getting that paycheck every two weeks? Say goodbye to at least a portion of it, as the IRS will force your employer to redirect some (or all) of the funds you’re supposed to receive to their own account instead.
Planning on selling some stocks, a piece of property, your house, your car, or anything else in the public market? Unless you handle it entirely off the books (using cash or whatnot), the IRS tax collector will carve themselves a huge piece of your pie before it’s handed over to you.
The collection process is the true nightmare scenario, and one that you’ll want to avoid at all costs, so make sure that you don’t keep ignoring your problem because if it comes to this stage, you’re going to have a very bad time.
What Are Some Consequences of Failing to File?
If you end up in the collections process, here are just a few of the problems that you may end up facing:
- Failure to File Penalties – This is the official name of the “late fee” associated with failing to file your taxes on time, and it includes a normal, set-rate penalty, plus interest charges that will depend on just how late you end up paying your taxes. The longer you wait to pay them, the more you’re going to end up owning.
- Losing Your Tax Refund – If you’re due a tax refund, then you technically don’t need to file a tax return for that year, but you will lose access to the refund if you don’t file your taxes. If you wait too long to file that return, then the IRS will simply confiscate your refund and you’ll be out the money altogether. Most of the time, you’ll have 3 years to file for your refund.
- Earned Income Tax Credits – If you’re eligible to receive the Earned Income Tax Credit (EITC) benefit then you’ll need to file a tax return to claim it, and again, you’ll have to do that within 3 years of the return being due, or your benefit will be forfeited to the IRS. I’m not sure why anyone would avoid filing a return when they’re set to get money back, but it does happen. Don’t be one of those people.
- Statutes of Limitation – If you fail to file your return within the 3 year window, you’ll lose the tax refund you were owed, plus the application of any tax credits due for overpayment of estimated withholdings, meaning that any money you were supposed to get back, get credited, or otherwise have access to will be gone forever.
Keep in mind that the Statute of Limitations laws were written to be applied only against your interests as well; the IRS doesn’t only have 3 years to collect your back taxes… they get much longer.
What’s the moral of this story? Deal with your back taxes immediately to ensure that you don’t end up being penalized, losing benefits you’ve earned, and basically being forced to pay far more than you should have in the first place.
Can I Ignore the IRS Forever?
Let’s say that you’re able to continue operating unscathed because your financial assets remain entirely under the table, perhaps in all cash transactions, foreign accounts, or some other way that the IRS can’t touch them; can you simply ignore them forever?
The short answer is, no, because eventually, you’re going to be put in prison.
If you continue failing to file your tax returns year after year, then the IRS won’t just go after your assets, but will literally come find you, arrest you, and put you in prison.
Don’t believe it happens? Check out what they did to Wesley Snipes, who fought the IRS tooth and claw, then ended up being forced to serve nearly 3 years in prison for his tax problems.
Putting off your IRS back tax problem is the worst way to deal with the situation; if you’re in trouble with the tax collector, it’s time to step up to the plate and do something about it.
I Need Help – What Should I Do?
If you don’t want to spend any money getting back taxes assistance from an attorney, tax professional or other debt relief type agency, then the best path forward is probably contacting the IRS directly, telling them what your situation is, and asking them for help in resolving it.
It may sound scary, but the IRS actually does help people out of sticky situations, and they’ve got people who’s entire job is to assist tax payers in figuring out how to proceed.
To contact the IRS for help with your past due return, call them at 1-800-829-1040.
The rest of this page breaks down the steps that you’ll need to take to resolve your back taxes problem, offering some advice on each part of the process to ensure that you don’t leave anything out.
How Do I File Back Taxes (Late Tax Returns) Myself?
It is possible to take care of your IRS back taxes problem on your own, though that complicates the process because it requires you to do quite a bit of research and work.
Many people choose to simply pay someone else to handle this stuff for them, which is a good idea if you’ve got the money to pay for assistance, since tax experts are likely to do a better job finding you deductions and exemptions, and negotiating with the IRS through processes like the Offer in Compromise.
However, dealing with your back taxes problem on your own will definitely save you the cost of outsourcing that work, which could run from several hundred to a few thousand dollars, so if you’ve got lots of free time and a good brain, then simply pay attention the process I detail below and you can take care of everything entirely on your own.
If you’ve got past due tax returns, here’s how you should deal with them.
First – Get You Documents Together
Before you can deal with your back taxes issue, you’re going to have to figure out just how much you actually owe.
Gather up all your relevant IRS forms and paperwork, like the relevant W-2’s for whatever years you need to deal with, applicable 1099 forms, and any other forms of documentation that showcase your reportable income.
If you plan to file for any tax deductions or tax credits, then you also need to collect up any applicable receipts and documentation that prove you’re going to be able to take advantage of those benefits as well.
Once you’ve got everything together, you can start on Step 2.
Second – Ask for Missing Information
Oftentimes, people looking to deal with IRS back taxes find themselves missing some important documentation, either on the income or the write-off side.
If you don’t have access to all the documents that you need to deal with your back taxes, then you’ll want to immediately file requests for the missing documentation.
To get paperwork from the IRS, simply fill out form 4506-T, the Request for Transcript of Tax Return, which allows you to request all sorts of paperwork, from W-2s to 1099s or 1098s.
Keep in mind that it could take up to 45 days for the IRS to process your request and get you the details you need, so make sure to put this request in as soon as possible; long before you plan to file your return for back taxes.
Third – Get The Past Year’s Forms
When you file back taxes, you have to use the form from the correct year, so if you’re filing your 2020 taxes, you need to download the 2020 tax forms.
Fortunately, the IRS website makes it easy to find any previous years forms, and you can grab any of the relevant documents right here on the IRS Prior Year Products Page.
Don’t neglect this step in the process, because each year the IRS issues different tax forms, and if you submit the wrong year’s form, then your return will get rejected and you’ll remain in the same position you began (or worse).
Fourth – Prepare Your Return
Now that you’ve got all the docs and information you need, along with the tax return forms for whatever years you need to deal with, it’s time to fill everything out and prepare to submit your information.
The first thing you’ll need to do is use the applicable years’ instructions when filling out your return. Just like you need to use the 2020 tax form to file your 2020 back taxes, you’ll need to use the 2020 return instructions to complete your 2020 return.
Tax laws change every single year – sometimes dramatically – so be sure to refer to the official IRS website when completing your return, as using the wrong year’s instructions could lead to a serious hassle.
This is the hardest part of the process, and the reason why so many people rely on paid services to handle their back taxes for them; it’s not easy to complete several returns at once, especially if you’ve got a complicated tax situation, or if the laws have changed significantly during the impacted time period.
Fifth – Submit Your Return
This list sure makes a complicated process seem easy, right? If you’ve made it all the way through completing your back tax return, then the good news is that you’re all done and ready to submit your details.
Either use the official IRS website, or mail your paperwork in, and be happy that you took care of the problem and can move on with your life.
What Should I Do?
If you’ve got back taxes, it’s time to deal with them.
Personally, I’d outsource the work to an expert because it’s far faster, easier, and more likely to get you a better resolution, especially if you owe a great deal of money.
However, if you only owe a few hundred, or a couple thousand dollars, then it may not be worth the costs of consultation, and you may want to simply handle this process on your own.
The more complicated your tax return is, the more likely hiring an expert will help. The more simplistic your return is, the less you’ll need to pay someone else for assistance.
But there’s only one group I trust to help my readers, and that’s the IRS Tax Debt Relief Helpline.
While you may have heard that Tax Resolution Services can’t do anything you can’t handle yourself, and for free, that’s not necessarily the case, because professional IRS negotiators are going to be much better at understanding the loopholes in the tax code and negotiating with the IRS on your behalf.
Just think – have you ever even Negotiated an IRS Settlement? What do you know about the IRS Fresh Start Program, or about the IRS’s Tax Debt Forgiveness Program? Do you even know How to Stop an IRS Wage Garnishment?
The experts at the Tax Debt Relief Helpline know how to handle all these things, they’ve negotiated thousands of cases and they are far more likely to get you a satisfying result than you could achieve on your own.
To get effective relief from your IRS debt, please call the Tax Debt Relief Helpline now at 1-888-692-7108.
Where Can I Go For Other Questions?
If you do choose to go it alone, have no fear, because I’ve created all sorts of helpful Guides that will help you achieve true IRS Tax Debt Relief.
Before deciding what to do, I recommend looking at my Guides on IRS Tax Penalties, IRS Back Taxes, IRS Tax Debt Forgiveness, IRS Tax Debt Settlements, Avoiding the IRS Collections Process, and Enrolling in the IRS Fresh Start Program.
One or more of these Guides are sure to help you determine what you need to do to deal with your IRS problems.
Finally, you may want to look up the IRS’s Taxpayer Bill of Rights, which explains your legal rights and protections vs. the IRS and their hired private debt collectors.
And if you have any other questions, please feel free to post them in the Comments section below and I’ll get you a response as quickly as possible.
I’m happy to help, so don’t be shy!
Disclaimer: Information obtained from Forget Tax Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of the Treasury, the IRS or any other Government Organization.