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According to the U.S. Treasury there were over 137 million tax returns filed last year. Approximately 100 million of them received refunds. But that left 37 million who had to write a check to the IRS. And, some of them weren't able to come up with the money.
What happens if you can't pay your taxes? Cutting through the legalese, according to the IRS website you'll pay interest until you pay your taxes in full. The rate will be the federal short-term rate plus 3%. In addition, you will generally have to pay a late payment penalty up to a maximum of 25% of the unpaid tax
If you find yourself unable to pay, your first step is to file your tax return without money to pay the taxes due. Again we'll turn to the IRS for their explanation:
"Don't panic. If you cannot pay the full amount of taxes you owe, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You also should contact the IRS to discuss your payment options at 1-800-829-1040. The agency may be able to provide some relief such as a short-term extension to pay, an installment agreement or an offer in compromise, or by temporarily delaying collection by reporting your account as currently not collectible until you are able to pay. In some cases, the agency may be able to waive penalties. However, the agency is unable to waive interest charges which accrue on unpaid tax bills. For more information, see The Collection Process and Tax Payment Options. See the Form 1040 instructions on the About Form 1040 page for additional guidance on filing and paying your taxes." source: IRS.gov
What happens if you contact the IRS and you can't work out a payment plan? Or if you're on a plan and unable to keep up with those payments? In that case the IRS will become a collection agency. And, unlike private agencies, they have many more options available to them:
- Liens & Levies: A lien ties up your home or other property. Since it's a public record it could effect your credit score. The IRS also has the authority to simply take money from your savings or checking account using a levy.
- Garnishments: The IRS is also allowed to garnish your wages. Money is removed and sent to the IRS before you receive your paycheck.
- Seizures: The IRS can also seize your personal or business assets.
If you can't work out a payment plan or keep up with an existing plan it's time to call in a professional for help. We've known and recommend the experts at Debt.com. They've been helping people with debt problems for over 20 years. There's no risk and no charge to talk with them. You can fill out the form below or use the toll-free number 1-866-359-7455. A trained conselor will review your information and discuss the best possible method of reducing your tax burden.
If you're really not sure where to start, send us an email describing your situation. Tell us the important elements and we'll try to point you in the right direction.
If you are working to get out of debt, our free weekly Surviving Tough Times newsletter can be a great tool. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribe today! Or you can like us on Facebook or follow us on Twitter. Simply look for posts marked with #TDSGetOutOfDebtCourse to get helpful ways to make extra cash and trim monthly expenses so you can free up additional money to put towards your debt.
Choose the Next Step of Your Debt Solution Plan:
- Understand what the future may have in store for you if you decide not to do anything about your debt.
- Reduce your student loan payment(s)
- Reduce your credit card debt
- Lower your auto loan payment(s)
- Reduce your mortgage payment
- Restore your credit
- Chart your financial future
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