Are you unsure if you owe back taxes? The IRS expected more than 128.7 million individual tax returns to be filed by the April 15, 2024, tax deadline. If you missed that deadline or overlooked something, you could be carrying a growing financial burden without realizing it.
Whether it’s an unfiled return or an underreported income, not knowing if you owe can lead to unnecessary stress and worry. But the good news is, there are clear steps you can take to find out where you stand and what you need to do next.
In this guide, we’ll break down the question: how do I find out if I owe back taxes, and more importantly, how to address the situation quickly and effectively before it turns into a larger issue?
Understanding Back Taxes
Back taxes refer to unpaid taxes that were originally due but haven’t been paid. This can happen for a variety of reasons, such as not filing a tax return, underreporting income, or claiming incorrect deductions. Over time, IRS interest and penalties can accumulate on back taxes, causing the total amount owed to grow significantly larger than the original amount.
If you owe federal back taxes, you’ll need to settle them with the IRS, typically through a payment plan or a lump-sum payment. Failing to pay back taxes can lead to serious legal consequences, including wage garnishment, liens on your assets, or even criminal charges.
We’ll break down each of these topics in detail in the sections below, helping you understand how do you find out if you owe back taxes, give options, and address back taxes effectively.
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How do I Find Out If I Owe Back Taxes?
Owing back taxes to the IRS can happen for several reasons, such as unfiled tax returns, errors on filed returns, or unpaid balances from previous years. If you think you might owe taxes but aren’t sure, here are some detailed steps to help you find out.
Check Your Mailbox for IRS Notices
The IRS will typically send you a letter if you owe back taxes. These letters are usually referred to as Notices of Deficiency or Balance Due Notices and will outline the amount you owe, the tax year involved, and how to address the issue. Be sure to carefully read any official IRS correspondence you receive, as it provides important instructions and deadlines. If you receive such a letter:
- Don’t ignore it. The problem won’t go away on its own, and delaying action can lead to penalties or interest charges.
- Follow the instructions outlined in the IRS final notice for paying the amount owed or disputing the claim if you believe there’s an error.
Important Tip: Watch Out for Scams
The IRS only contacts taxpayers through official letters sent by mail. They will never email, text, or reach out to you via social media to request payments or personal information. If someone does contact you this way, claiming to be the IRS, it’s likely a scam. Be sure to report such contacts to the Treasury Inspector General for Tax Administration at 800-366-4484.
Review Your Past Tax Returns
Mistakes or omissions on previously filed tax returns are common reasons why someone may owe back taxes. Here’s how you can review your past returns to spot potential issues:
- Look for missed income. Did you forget to report income from freelance work, side gigs, or investments? The IRS cross-references your reported income with data they have from employers and financial institutions, so unreported income could trigger a tax bill.
- Double-check deductions and credits. Were you eligible for deductions or credits that you missed, or did you incorrectly claim some? Errors here could result in taxes owed.
- Amend returns if needed. If you find mistakes, you can file an amended tax return (Form 1040-X) to correct them. This can reduce your tax liability or, in some cases, prevent future penalties.
Access Your IRS Account Online
The IRS offers a convenient online tool where you can check if you owe any back taxes. Here’s how to use it:
- Visit the IRS Website: Go to irs.gov and click on the “View Your Account Information” option.
- Create or log into your IRS account: You’ll need to create an account if you don’t have one. The setup process requires identity verification, so be prepared to provide personal information like your Social Security number and tax return details.
- Check your balance: Once logged in, you can view any balances due, including back taxes, penalties, and interest. You’ll also be able to see detailed records of your tax filings and payments from previous years.
- Download tax transcripts: These provide a detailed breakdown of your past returns, including any adjustments the IRS has made.
Call the IRS for Direct Information
If you prefer to speak to a representative or need help navigating your tax situation, you can call the IRS directly:
- Dial 800-829-1040 for the IRS individual taxpayer line. Be prepared for long hold times, especially during peak tax season.
- Have your information ready: You’ll need your Social Security number or taxpayer identification number (TIN), as well as copies of previous tax returns, any IRS letters you’ve received, and other relevant tax documents.
- Ask about your account balance: The IRS agent can provide details about any taxes owed, including the tax year, amount, and possible penalties. They can also explain your options for payment or setting up a payment plan.
Consult a Tax Professional
If you’re unsure about your tax situation or find it too complicated to manage on your own, consulting Mr. Michael Sullivan, an IRS consultant, is a smart choice. Here’s how he can help:
- Expert Review: Mr. Sullivan will carefully examine your previous tax returns to identify any missed income, errors, or unfiled returns that may result in back taxes.
- Personalized Advice and Representation: With over 250 years of cumulative direct IRS experience, Mr. Sullivan and his team can help you resolve tax debts, whether it’s negotiating with the IRS, setting up a payment plan, or applying for relief programs like the IRS Fresh Start Initiative.
- Audit Assistance: If your back taxes stem from an audit or you’re facing one, Mr. Sullivan provides a comprehensive IRS tax audit defense. With his insider knowledge from years at the IRS, he can represent you, ensuring your rights are fully protected throughout the audit process.
Discovering how do you find out if you owe back taxes is just the beginning; understanding the consequences of unpaid taxes is equally important to avoid escalating financial challenges.
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Consequences of Owing Back Taxes
The consequences of owing back taxes are important to know because they help you take the right steps to avoid costly penalties and interest that can quickly add up. By knowing what to expect, you can act faster and prevent your tax debt from getting out of control.
- Failure to File Penalty: If you don’t file your return or an extension, you’ll face a penalty of 5% of the unpaid balance per month or part of a month, up to a maximum of 25% of the unpaid tax.
- Fraud Penalty: If your failure to file is due to fraud, the penalty increases to 15% per month, capped at 25% of your unpaid taxes.
- Late Filing Penalty After 60 Days: For returns filed more than 60 days after the due date or extended due date, the minimum penalty is either $485 or 100% of the unpaid tax (whichever is smaller).
- Failure to Pay Penalty: If you don’t pay the taxes owed by the due date, the IRS will charge a failure to pay a penalty of 0.5% per month on your unpaid balance, capped at 25% of the amount owed.
- Interest Accrual: In addition to penalties, interest is charged on your unpaid taxes. The interest rate changes quarterly; for July–September 2024, it’s 8%.
- Accumulation of Tax Debt: If you don’t pay your taxes in full by the due date, you’ll accumulate tax debt, which continues to grow with penalties and interest until paid off.
The longer back taxes go unpaid, the more penalties and interest can accumulate, increasing your financial burden significantly. To avoid this, it’s important to take action quickly. Here’s what you should do next if you owe the IRS.
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What to Do Next If You Owe the IRS?
Now that you have an answer for what you have visited us, i.e., how do I find out if I owe back taxes? It’s important to take action as soon as possible to avoid further penalties, interest, and potential collection efforts from the IRS. Here’s what you can do to resolve your tax situation effectively:
1. Pay What You Owe in Full (If You Can)
The best way to stop penalties and interest from piling up is to pay your tax debt in full. You can make a lump-sum payment using several methods:
- IRS Online Account: Set up an account on the IRS website to make a payment directly.
- IRS Direct Pay: This is a free, 24/7 payment option on the IRS website that allows you to make payments directly from your bank account.
- Credit or Debit Card: You can pay by credit or debit card online or by phone through an IRS-approved processor (note that a processing fee will apply).
- IRS2Go App: If you prefer to pay through a mobile app, the IRS2Go app offers a secure way to make payments.
- Electronic Federal Tax Payment System (EFTPS): This free service lets you pay taxes online or by phone after enrolling.
2. Set Up a Payment Plan
If you can’t pay your tax debt in full right now, you can apply for a payment plan with the IRS. This allows you to pay back taxes over time:
- Installment Agreement: This plan allows you to make monthly payments toward your tax bill. While penalties and interest will still apply, the IRS will stop aggressive collection efforts as long as you make your agreed-upon payments. You can apply for a payment plan online, by phone, by mail (using Form 9465), or in person at a local IRS office.
- Long-Term Payment Agreement: This plan is for those who owe under $50,000 in taxes, interest, and penalties, and allows you up to 72 months to pay the balance. Make sure to make monthly payments on time to avoid cancellation of the agreement.
- Short-Term Payment Plan: For those owing under $100,000 in tax, interest, and penalties, this plan allows for payments within 180 days. It has no fees but will accrue interest and penalties until fully paid.
- Streamlined Installment Agreement (SLIA): If your total debt (taxes, penalties, and interest) is between $25,000 and $50,000, you may qualify for this plan without needing to provide financial information. Payments must be made via payroll deduction or direct debit within 72 months.
3. Consider an Offer in Compromise (OIC)
If you’re unable to pay the full amount of taxes you owe, you might qualify for IRS tax debt settlement help through an Offer in Compromise (OIC), which allows you to resolve your debt for a reduced amount. To be eligible, you must meet specific criteria:
- Apply by Filing Forms 656 and 433-A: These forms require detailed information about your finances.
- The IRS will consider your ability to pay, income, expenses, and assets when deciding whether to accept your offer.
- If accepted, you can choose to pay either in a lump sum or through periodic payments.
4. Request a Delay in Collection
If paying your back taxes right now would cause financial hardship, you can ask the IRS to temporarily delay collection efforts. Keep in mind:
- Proof of Financial Hardship: You’ll need to provide evidence that paying your tax debt would make it difficult to cover basic living expenses.
- Currently Not Collectible Status (CNC): If the IRS agrees that you can’t afford to pay your taxes and cover your basic living expenses, they may grant you CNC status. During this time, they won’t take collection steps, but penalties and interest will continue to accumulate.
- Penalties and Interest Continue to Accrue: Even if the IRS delays collection, penalties, and interest will still add up until you pay off the debt.
5. Innocent Spouse Tax Relief
If your spouse understated the taxes due on your joint tax return and you were unaware, you might qualify for innocent spouse tax relief.
- This applies only to your spouse’s income or errors, such as unreported income or incorrect deductions.
- It does not cover business taxes, household employment taxes, or individual shared responsibility payments.
- You may still be responsible for your share of the taxes, but innocent spouse relief limits your liability for your spouse’s taxes.
6. Partial Pay Installment Agreement (PPIA)
For taxpayers who can’t pay their total balance within the IRS’s collection period (usually 10 years), a Partial Pay Installment Agreement (PPIA) is an option. Here,
- You make monthly payments until the Collection Statute Expiration Date (CSED).
- After the CSED expires, the IRS will stop all collection actions, including levies and asset seizures.
7. First-Time Penalty Abatement
If you have a good tax compliance history and this is your first time dealing with penalties, you might qualify for First-Time Penalty Abatement. This allows the IRS to waive certain penalties, such as failure-to-file or failure-to-pay penalties, under the following conditions:
- You’ve filed all required tax returns.
- You have no penalties for the previous three years.
- You’ve paid or arranged to pay any tax due.
Taking the right steps can feel overwhelming, but Michael Sullivan can make the process easier. He has the expertise to review your tax situation, explain your options, and guide you in resolving your back taxes.
Learn More: How Much Does Tax Resolution Services Cost?
In Closing!
It’s time to face your back taxes head-on and take control of your financial future. Ignoring the problem will only make it worse, but taking action now can save you from more stress and bigger financial headaches down the road.
You can also make small changes to avoid tax problems in the future. Try setting up reminders for tax deadlines or setting aside money each month for taxes. Reviewing your income and expenses regularly will help you catch any issues early. Even something as simple as keeping all your receipts in one place can make filing taxes easier.
If you find yourself in a challenging spot, don’t hesitate to seek professional guidance from MD Sullivan Tax Group. Tax matters, especially back taxes, require the right expertise. Mr. Michael Sullivan offers more than just tax advice; he provides peace of mind by ensuring that your situation is handled with care and expertise.
Other than knowing how do I find out if I owe back taxes, if you want to know about IRS debt forgiveness programs, Micahel Sullivan can help you understand your options and guide you toward the right solution for your situation.
