Back Taxes: End Your Challenges with Unpaid Tax Debt

What Are Back Taxes?

Back taxes are any taxes you owe that remain unpaid after the year they are due. If you let an entire filing year go by without paying the IRS what you owe, it’s considered “back taxes.” It’s important to note that even taxes you don’t pay within a particular filing year already incur penalties and interest. In fact, penalties and interest are applied even if you file an extension.

It’s in your best interest to find a solution as soon as possible. The information below can help you get started.

5 Options For Addressing Back Taxes With The IRS

#1: File for Currently Not Collectible (CNC) status

If you simply don’t have the means to pay what you owe, Currently Not Collectible (CNC) status is what you need to file. Instead of trying to avoid the IRS, you tell them up-front that you’re not in a position to pay. They will review your financial situation, so you must provide proof that your household income is only enough to cover basic living expenses. Once they approve CNC, the IRS stops all attempts to collect. This stops wage garnishment, liens, and levies because the IRS officially recognizes you can’t afford to pay. The only thing CNC doesn’t stop is penalty and interest assessments. In other words, your tax debt will increase while you’re on CNC. But you won’t be burdened to pay until your situation improves.

#2: Set up an Installment Agreement (IA)

Installment Agreements are the most common way to pay back taxes to the IRS. You can use an IA to pay back one or more years of back taxes in a single payment plan. The total amount of back taxes you owe is divided into monthly payments set over a certain term. You negotiate with the IRS to determine how much you can afford to pay each month. It’s in your best interest to make the payments as big as possible so you can eliminate the back taxes as quickly as possible. Penalties and interest assessments don’t stop just because you agree to pay the IRS back. If you owe less than $10,000 you can apply for a simple installment agreement yourself through the IRS website. For those who owe more than $10,000 it’s recommended that you work with a tax debt resolution service.

#3: Make an Offer in Compromise (OIC)

An Offer in Compromise is the IRS’ version of a tax debt settlement plan. With an IA you repay everything you owe. With an OIC, you pay a portion of what you owe in exchange for a discharge of the remaining balance. It’s important to note that the IRS will require a thorough review of your finances. With a full financial disclosure, they evaluate if they can reasonably expect you to pay the full amount. If not, then they agree to a settlement. All of the payments for an OIC must be made within two years of the agreement. If you miss a payment or default, additional penalties can be assessed. The IRS is also unlikely to accept another OIC.

#4: Ask for Penalty Abatement

If you had a good reason why you didn’t file or didn’t pay what you owed when you filed, then you can apply for penalty abatement. This doesn’t reduce the back taxes you owe, but it minimizes the penalties applied to that debt. In order to be approved, you must prove you had “reasonable cause” not to file or pay on time – a major event, like a natural disaster or death in the family qualifies.

#5: If you’re an “Innocent Spouse” you qualify for full forgiveness

Complete tax debt forgiveness is extremely rare. The only time this really happens is if you can prove you were the spouse of someone who owes back taxes, but that you had no knowledge. You must have no knowledge of balances due or inaccuracies that occurred in a joint tax return. If you can prove it, you’re off the hook completely.


Disclosure: As part of our commitment to providing comprehensive financial education and support, we want to emphasize the importance of seeking professional assistance when dealing with complex tax matters. Everyone’s financial situation is unique, and some situations may require expert guidance.

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