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Back Taxes and Tax Debt

Collection FAQs

Mark Steber

Chief Tax Information Officer

Updated on: June 28, 2022

Additional Collection FAQs – JH site edits

What are back taxes?

Back taxes are simply money that you owe to the IRS. There are many causes of owing the IRS, including not having enough taxes taken out of your paycheck, or not making required estimated tax payments. If you have new sources of income like a side hustle or investment gains, you may owe taxes.

It's important to know that you are not alone. Each year, more than 32 million filers owe taxes when they file their return–and around 9 million people can’t pay. In total, IRS data shows that more than 17 million taxpayers owe the IRS right now. For those who owe and can’t pay, it’s important to set up an agreement with the IRS on their back taxes. The IRS has alternatives, including extensions to pay, payment plans, and other financial hardship options.

How do I know if I owe the IRS back taxes, and how much?

There are five ways to know if you owe the IRS money.

  • Online: Check using your IRS Online account or the online payment agreement tool.
  • IRS transcripts: Request and analyze your IRS transcripts to see if you owe taxes.
  • By phone: Call the IRS at (800) 829-1040, Monday through Friday, 7 am to 7 pm local time.
  • In person: Set up an appointment and go to the nearest IRS office.
  • By mail: The IRS will send you letters periodically about your tax bill and payment status.

Can I just ignore the IRS?

No. If you owe back taxes, ignoring letters doesn't make the IRS or your tax debt go away. In fact, it can make things worse. Besides accruing more penalties and interest, the IRS can also enforce payment with wage garnishments and levies to seize your funds and assets, or even file a tax lien or restrict your passport. The IRS will also keep your future refunds until you’ve paid the taxes.

The IRS has 10 years to collect back taxes–called the collection statute of limitations. During this time, the IRS will try repeatedly to collect. If you don’t set up an arrangement with the IRS for your taxes (payment, extensions to pay, payment plan, or a hardship option like currently not collectible or an offer in compromise), the IRS may enforce collection through levies and liens. Many options that delay IRS collection, like filing bankruptcy or leaving the country, will only extend the 10-year collection statute. In the end, it is just better to get into an agreement with the IRS for the taxes you owe.

What should I do if I owe back taxes?

Make sure you do these 8 things.

1. Carefully read the letters or notices the IRS sends to better understand the issue.

If you still don’t understand why you’ve received a letter or notice, you can look it up here or contact a tax professional. You can find the notice (CP) or letter (LTR) number on either the top- or the bottom-right corner of your IRS notice.

If you received a letter from the IRS, it is usually to notify you of a:

  • Balance due
  • Larger or smaller refund than expected
  • Question about your tax return
  • Delay in processing your return
  • Change the IRS made to your return

The IRS may also simply need more information, or to verify your identity or return information.

2. Confirm the IRS is correct about the amount you owe.

If you believe the IRS is wrong about the amount it says you owe, you will need to evaluate the best way to challenge the amount. If it comes from a filed return, you will want to consider amending the return. If the balance is from an audit, you may want to request audit reconsideration. If the IRS has assessed penalties, you may want to evaluate penalty relief options. The goal: Pay only what you legally owe.

3. Review your options on the tax bill.

Evaluate your ability to pay the IRS. If you just need more time, an extension to pay may be appropriate. If you need a payment plan, there are several options. If you are having financial difficulties, two hardship options may be appropriate: currently not collectible status or an offer in compromise.

4. Complete the required forms and documents for your agreement.

Most IRS agreements require you to fill out forms, send the IRS documents, and/or complete an online application. This part can be tricky, depending on the type of agreement you are requesting. Many taxpayers want the help of a tax professional to complete their agreement forms.

5. Respond to the IRS in a timely manner.

It is important to meet IRS deadlines. If you miss a deadline, you can be subject to enforced collection action like liens and levies. If you need more time, contact the IRS to request a collection hold to avoid liens and levies. Keep in mind, the IRS won’t allow multiple extension requests, so it’s best to complete your agreement request on time and make sure that the IRS accepts the agreement.

6. Meet the conditions of your agreement.

If it’s a payment plan, make payments on time. You should always take a close look at any new notices you get from the IRS. The goal here is to stay in good standing with the IRS.

7. Keep copies of letters, notices and/or agreements.

You may need these later.

8. Reach out to the IRS or a tax professional

if you are unsure what to do. Tax professionals who deal with the IRS regularly can help you with all of these steps, and ultimately save you a lot of time and anxiety.

How long do you have to pay, if you owe back taxes?

Payment terms vary based on the type of IRS agreement that is set up. If you are requesting a payment plan, your terms can be as short as 180 days or as long as the collection statute of limitations (10 years). Most IRS payment plans have taxpayers pay their full tax bill within 72 months (called the IRS streamlined installment agreement). However, each person’s circumstances are different. Understanding the options and your specific circumstances is the key to determining the terms of your agreement.

How can I pay back what I owe?

There are 4 options, called the IRS collection alternatives to full payment.

  • First, there is the extension-to-pay agreement, which can provide you up to 180 days to pay the IRS.
  • Second, there are different types of IRS payment plans, called installment agreements. The payment plan options depend on your specific circumstances (how much you owe, your status with the IRS, your ability to pay, and others).
  • If you are experiencing financial hardship, there are two final options: currently not collectible status or, if you qualify, the offer in compromise settlement program.

It is important to evaluate your specific circumstances to see which alternative is best.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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