How Much Do I Owe The IRS?
Filing and paying your taxes can be confusing, especially with all the recent changes to the tax law.
Do you still qualify for that deduction you got last year? What really counts as income? How much of your property taxes are you allowed to deduct?
If you think you owe money to the IRS, it can be tempting to stick your head in the sand and ignore the problem. However, doing so just compounds the issues you’re already facing. Taking care of your overdue taxes as quickly as possible is essential to getting the IRS off your back and allowing you to carry on with your normal life.
Do you think you owe the IRS money? Read on to find out what you need to do next.
What Do I Do If I Think I Owe The IRS Money?
There are a variety of reasons you may owe the IRS money and not realize it until it’s too late.
Some reasons you could owe money include:
- Not paying taxes in a previous year
- Not fully paying the interest and penalties on a prior tax debt
- Not filing taxes
- Getting married or divorced
- Increased income
- Decreased deductions, such as a child turning 18
- Receiving an inheritance, large gift, or prize
- Improperly calculating deductions
If you suspect you may owe money to the IRS, it’s important that you promptly get a handle on how much you owe, why you owe that money, and determine how you’re going to take care of the bill.
Check Your Return
The first step to take if you think you may owe the IRS is to carefully check over your tax return. This task may be best left to an accountant or other tax professionals, as they can more easily spot errors.
Check that you didn’t miss any information that could adjust your final tax liability, such as a deduction that you left off or income that was calculated too high. If you expected to break even or receive a tax refund but didn’t, check that you answered all the questions that qualify you for deductions correctly.
Once you’ve checked over your tax return and corrected any errors, recalculate your final total.
Contact The IRS
You also can directly contact the IRS to find out if you owe money and how much you owe. Either call the IRS or contact your local IRS office.
When you call, be sure to have your Social Security number and other personal information readily available to identify yourself.
The representative should be able to tell you whether you owe the IRS money and how many different assessments you owe.
What To Do If You’ve Received An IRS Notice
Sometimes, the first inkling you may have that you owe the IRS money is when you receive a notice in the mail.
There are a variety of reasons the IRS may send a notice to you, including:
- You have an outstanding tax balance
- You are owed a refund
- There is a question about your return
- The IRS has amended your return
- There are delays in processing your return
These official notices can be scary, but working quickly to handle your tax bill can keep these from coming in the future.
If you receive a notice from the IRS, do not ignore it. Ignoring the notice, even if you feel it was sent to you in error, could lead to more severe consequences.
Types Of IRS Notices
There are over 1,000 different types of IRS notices, so the agency has something to suit every situation.
However, there are two particular notices that taxpayers should never ignore if they find them in their mailboxes: IRS Statutory Notice of Deficiency and Final Notice of Intent to Levy.
IRS Statutory Notice Of Deficiency
If you receive this notice, you’re being told that you owe the IRS money.
The IRS may have performed an audit of your returns, you may have underreported taxable income, or the IRS is performing an unfiled return investigation. No matter what the reason, you must respond to an IRS Statutory Notice of Deficiency promptly.
This type of notice is often seen as a “last chance” notice; the IRS has sent you multiple other notices and letters reminding you of your unpaid taxes, but you have yet to respond.
You have 90 days from the date of this notice to either dispute the charges the IRS says you owe or pay your taxes.
Final Notice Of Intent To Levy
If you have delinquent taxes, one of the ways the IRS can try to collect money from you is through a levy. Levies can be placed against your bank accounts, on your paychecks, or against the sale of valuable property.
A levy is never the first step the IRS attempts to get their money; you will only see your assets levied after the IRS makes repeated attempts to collect your debt.
If you’ve received a Final Notice of Intent to Levy, you have 30 days to pay your balance in full or create a payment plan with the IRS. If you don’t, your wages, bank accounts, or other assets could be levied.
What Happens If I Ignore IRS Notices?
It is never a good idea to ignore a notice you receive from the IRS.
Not taking care of the actions the notice requires as soon as possible, even if you believe you were sent the notice in error, can lead to major problems for you down the road.
Some actions the IRS can take if you do not respond to their notices include:
- Substitute for return: If you did not file your return, or you didn’t properly amend your return when the IRS asked, they can file a Substitute for Return on your behalf. This Substitute for Return is calculated based on previous returns filed and other information the IRS has, meaning you have no control over the income or deductions used in its preparation.
- A visit from the IRS: The IRS could send a tax revenue officer to your home for a visit. During this visit, the tax revenue officer will discuss with you your financial situation and outline the consequences you can expect if you fail to pay your tax debts.
- Wage garnishment: The IRS can place a lien against any future wages you earn, taking a portion of your paychecks to pay back your tax debt.
- Asset seizure: The IRS can take nearly any asset you may own and sell it to satisfy your debts. This includes your home or other real estate you may own, vehicles, jewelry, and financial accounts.
- Criminal charges: Not paying your taxes on time is a misdemeanor potentially punishable by jail time. However, the IRS rarely uses this consequence except in the case of outright tax fraud.
What Are The Consequences Of Owing Money To The IRS?
Owing the IRS money means more than just annoying letters and an overdue bill.
Not paying your taxes can quickly spiral into an unmanageable financial situation for some taxpayers, and you can feel the effects of your debt in various areas of your life.
Additional Fees & Penalties
As soon as the deadline to pay taxes passes, your account begins accruing penalties and fees. If you didn’t file your taxes on time on top of not paying your taxes, you can expect additional fees and penalties.
Over a short period of time, these penalties add up, with some adding 25% of your total tax bill onto what you already owe. That means a seemingly modest $1,000 in unpaid taxes to the IRS quickly becomes more than $1,250.
Your account continues to accrue these penalties and fees as long as you have an unpaid balance.
Your Credit Score Suffers
The IRS does report delinquent balances to all the major credit reporting agencies.
If you’ve got unpaid taxes and the IRS is reporting that balance, it can negatively impact your credit score. When your credit score takes a hit, that could mean you:
- Can’t get a loan for a house
- Have a harder time finding a job
- Can’t open a new credit card
- Can’t buy a car
- Can’t get a loan to make necessary repairs to your house
- Don’t qualify for student loans
Levies & Garnishments
Because the IRS wants its money, it will take actions to get it by nearly any means possible.
This could mean that you are left with little money in the bank or assets of value if the IRS seizes them to satisfy your debt.
The IRS has a few options available for levies and garnishments, including:
- Wage garnishments: A portion of all your future paychecks automatically gets routed to the IRS until your debt is paid.
- Bank levies: The IRS can place a levy on your checking, savings, or other financial accounts, taking all or a portion of the money there to pay back your debt.
- Asset levies: Items of value that you own - real estate, cars, jewelry, artwork, and more - can be seized by the IRS. These items then are sold by the IRS, which uses the profits from their sale toward your debt.
Debt Collection Calls
Your unpaid tax debt could be turned over to any of a number of private collections agencies with whom the IRS works.
These collections agencies act just like the ones working for credit card companies or other institutions. They send you threatening letters in the mail and can make embarrassing phone calls to your home or place of work.
Although rare, the IRS can slap you with a misdemeanor charge for not paying your taxes, which could mean you spend time in jail or have to pay a large fine.
This route is typically only taken in cases where there’s been outright fraud, as the IRS would rather have you able to work to pay back your taxes than sitting in a jail cell.
What Are My Options If I Owe The IRS Money?
If you owe money to the IRS, there are several options available to you to help settle your balance. Not every option is available to every taxpayer, but consulting with a knowledgeable tax professional can help you find some guidance toward the solution that’s right for you.
The quickest and easiest method for taking care of your tax debt is to pay the entire bill outright. This wipes the slate clean and you don’t have to worry about making extra payments over a period of months or years.
When paying the balance in full, be sure to get your current amount owed directly from the IRS so you don’t accidentally forget to pay some penalties and fees on your account.
If you can’t pay your debt in full right away but plan to be able to come up with the money in the near future, you can ask the IRS for a 120-day extension to pay.
For taxpayers that don’t have the full amount of what they owe upfront but feel they can pay the balance over time, an installment agreement may be an option.
With this option, you apply for an installment agreement with the IRS, sending your first payment along with your application. You then continue to make your agreed-upon payments each month until your debt is paid.
This option is available for those who owe less than $50,000 to the IRS.
Offers In Compromise
The numbers on your tax bill may be frightening, and you may wonder if you’ll ever be able to pay the full amount.
If you can show that you can pay some of your tax bill, but paying the entire amount would cause you great financial harm, you may qualify for an Offer in Compromise.
With an Offer in Compromise, you and the IRS settle on the smallest amount the IRS thinks you can pay using calculations that take into account your current earnings, current assets, and projected future earnings. You can either pay off this Offer in Compromise in a lump sum or in a series of installment payments.
Currently Not Collectible Status
For those with severe financial hardships, Currently Not Collectible status may be an option.
If you can prove to the IRS that paying your tax debts would be a severe financial burden, but given some time you may be able to earn enough money to pay, then you may be granted Currently Not Collectible status.
When you are granted Currently Not Collectible status, all active collections efforts on your account - phone calls, letters, and levies - cease, giving you up to 10 years to earn more money and pay your debt.
Do I Need To Hire An Attorney If I Owe The IRS Money?
You do not need to hire an attorney or tax relief company if you owe money to the IRS, but many people find that having a professional who understands the laws as well as their situation gives them peace of mind.
How Can I Avoid Owing The IRS In The Future?
The best way to avoid owing the IRS money in the future is to make sure you’re filing and paying your tax returns on time each year, and that all the information on your tax returns is correct.
If you unexpectedly owed money one year, make sure you carefully look at your reported income and the deductions you took. You may need to adjust your withholdings in order to avoid paying a larger tax bill at the end of the year.
Speaking with an accountant or other trained tax professional can give you the best insight into your individual situation.
Find IRS Tax Debt Relief Help Today
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How do I know if I owe taxes to the IRS?
You can find out if you owe taxes (and the amount owed) by calling the IRS directly at 1-800-829-1040 on Monday through Friday, 7 am to 7 pm local time.
How do I make a payment to the IRS?
You can make payments in the following ways:
- Pay directly from a checking or savings accoutn for free with IRS Direct Pay
- Pay with a credit or debit online, by phone, or with a mobile device
- Create an installment agreement and allow the IRS to have direct access to a checking or savings account
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