Back Taxes Explained
Updated September 2023
Back taxes are the taxes you owe to the Internal Revenue Service that were wholly or partially unpaid the year they were due.
In our content about back taxes, we cover all the steps, and a clear description of everything you need to know about back taxes, tax collection, and the government-installed tax relief programs that can help people manage their tax debt.
- Back taxes refer to the taxes a taxpayer owes to the IRS for a previous tax year.
- Owing back taxes to the IRS can lead to serious tax consequences, such as penalties, interest accumulation, tax liens, tax levies, or wage garnishments.
- Taxpayers can pay back taxes to the IRS by filing the federal income tax returns associated with the unpaid taxes or by applying for tax debt relief through the IRS Fresh Start Program.
Tax Debt and Back Taxes
When an individual files a tax return, they can see how much they owe in taxes for the year or how much the government owes them in a tax refund if they have overpaid in taxes. Tax debt is accumulated when an individual fails to pay the tax balance presented on their federal income tax return by the filing due date.
If you fail to pay what you owe in taxes, the IRS can place penalties and seek other options for securing payment for the tax debt you owe, so it is best to understand and pay your tax liability to avoid accumulating tax debt and back taxes.
What Are Back Taxes?
Back taxes refer to the taxes an individual or company owes for a prior tax year. There are several reasons people can intentionally and unintentionally accumulate back taxes, such as failing to report an income stream or the total amount of income earned during that year, filing a tax return or W-2 tax form without paying their tax liability, and neglecting to file a tax return.
Consequences of Owing Back Taxes
Filing a tax return every year to pay your tax liability is the most efficient method of avoiding back taxes and the penalties of accumulating debt, but if a taxpayer learns that there are back taxes owed to the IRS, here are some of the consequences:
- Failure-To-Pay Penalty
- Failure-To-File Penalty
- Failure-To-Deposit Penalty
- Interest Accumulation
- Tax Lien
- Tax Levies
- Wage Garnishment
How To Pay Back Taxes
The financial burden of paying taxes can be challenging enough without the added build-up of back taxes and the penalties associated with tax debt. You can file a tax return from a previous year to pay your back taxes, but there are consequences for waiting too long.
Paying Back Taxes Without Tax Relief
If you file a tax return within three years, you can pay off your back taxes as well as potentially receive any tax refund you might have coming. If you file a tax return within three to six years, you can pay off your back taxes and be considered in good standing with the IRS, but you will not be eligible to accept incoming tax refunds. If you file a tax return over six years late, you can still pay off your back taxes. However, by this point, you may not be considered in “good standing” with the IRS anymore.
Paying Back Taxes With Tax Relief
Although catching up on tax payments can be challenging, many government-installed tax relief programs assist people in paying taxes and managing their tax debt. Looking for tax relief? Make sure to check out the IRS Fresh Start program.
IRS Installment Agreement Payment Plan
IRS payment plans allow individuals to pay the back taxes they owe over a period of time through monthly installments, which will hopefully be more manageable financially.
The IRS offers two main types of installment agreements: one short-term payment plan which constitutes a period under 120 days, and a long-term payment plan, which is for a period longer than 120 days.
Payment plans are an excellent option for people who owe taxes but cannot afford to pay their full tax liability at the current time, though being approved for an installment agreement will not remove the penalties and interest applied to their account, and they will still be responsible for paying all accrued interest until their tax balance is zero.
Offer in Compromise
An offer in compromise is an agreement between the taxpayer and the Internal Revenue Service to settle their tax debts for less than what was initially owed.
To qualify for an offer in compromise settlement, taxpayers must be up to date on all tax return filings and prove to the IRS that they cannot afford to pay their back taxes or that paying their full tax debt will create financial hardship.
When applying for an offer in compromise, once they have submitted their application, the IRS suspends all collection activities until they have reviewed and answered your submission. However, any federal tax liens the IRS has placed against them will remain until they have successfully settled their tax debt.
Currently Not Collectible Status
People with tax debt can sometimes qualify to have a “currently not collectible” status placed on their accounts by the Internal Revenue Service, which temporarily flags their account as exempt from paying taxes, though their income may still be reviewed each year to determine if their financial situation has improved or if their status should remain.
Being listed as currently not collectible also does not make taxpayers immune to the IRS filing a tax lien against their property or pursuing a tax levy, nor does it make their tax debt disappear, so it is beneficial to take advantage of the financial relief of delaying tax payments and prepare to make timely payments of their tax liability in the future.
Being in debt is stressful and scary, especially when you owe back taxes that are accruing penalties and interest as the tax liability continues to go unpaid.
While many IRS-installed tax relief programs can assist taxpayers in managing their unpaid taxes, if you are looking for direct help in resolving tax debt, consider consulting with us here at Ideal Tax to help you navigate the application process and get your tax issues under control.
The tax code may differ depending on your state, city, or local area, and our tax professionals have all the resources and tools to make your filing successful and offer a free first consultation. Instead of using tax software, actual tax help from an agency can reduce the overall tax bill, like costs in the application fee, penalties, and interest.
Do you have a question? Contact us today for a free tax consultation.
Help With Back Taxes
Ideal Tax is a tax relief business with the experience and knowledge to handle the most serious tax audits, including those involving back taxes.
Our tax audit attorneys and enrolled agents will negotiate with the IRS on your behalf and ensure that your taxpayer rights are protected and that the IRS auditor is playing on a level field.
Set up a free consultation with us today to see if you qualify for IRS debt forgiveness or to ask any questions about tax preparation.
Ideal Tax Representation
Ideal Tax has the experience and knowledge to handle the most serious of tax audits. Our expert Tax Attorneys and Enrolled Agents will negotiate with the IRS on your behalf and ensure that your taxpayer rights are protected and that the IRS auditor is playing on a level field. Call us today to discuss how we can develop a strategy that will allow you to address the audit and resolve it with better than acceptable results.