Can’t or Unable to Pay Back Taxes Owed


What to Do and Expect with Unpaid Back Taxes

Facts About Unpaid Taxes

Having unpaid back taxes and not being able to pay is a very common thing to the IRS. In an average year, 19% of the people in the United States have back taxes. Since this is such a common problem, you can be assured there are many solutions. The IRS (as well as many states) will work with you so it can ensure that it gets paid. Typically the IRS will try to collect the maximum amount of taxes owed from you with the least amount of effort, and this is a good thing to keep in mind if you intend on settling your back taxes for less than the actual amount owed. The earlier you acknowledge the problem with back taxes and take action, the easier it will be to settle them with the IRS. If back taxes go unpaid you can be assured that the IRS will find you and will eventually take action. The IRS has a very automated process that it goes through routinely in order to make people pay. See below to find a very brief description of the events you can expect to happen if action is not taken to resolve unpaid back taxes.

When you Can’t Pay Unpaid Taxes Owed

When you have unpaid tax and you cannot pay, you are still expected to pay the IRS. For those individuals that cannot pay in full, the IRS offers many other methods of payment. These methods range from making monthly payments toward the tax amount owed to paying only a fraction of what is actually owed and calling it even. Depending on your financial situation, the IRS will always be willing to work with you.

Steps for Paying Back Taxes Owed

There are many different ways you can pay your back taxes owed. Not only are there ways to pay, but there are ways to settle and pay less than is owed. If you know you can’t pay your back taxes, follow these easy steps for paying your taxes owed.

IRS Actions For Unpaid Back Taxes

  • Receive Assessment Letter and CP Notices (Computer Paragraph Notices, or 500 Series Notices)
  • Once the IRS determines that you have back taxes, it enters you into the automated computerized notice cycle. These letters will let you know how much you owe, including additional penalties and interest. The first letter you will receive is an assessment letter which will state the amount of taxes you owe. This letter will then be followed by a series of CP notices. There are four of these letters you will receive from the IRS. These letters are a series of automated messages that the IRS sends to anyone who has unpaid back taxes. If you do not respond to these letters the IRS will begin taking collection actions against you. The letters start with CP-501 and go through CP-504. CP-501 starts off as an undemanding letter and goes to CP-504 which is very threatening and mentions their intent to levy.

  • Receive Notice of Federal Tax Lien (NFTL, IRS Form 668)
  • Once you receive this notice the IRS will have already encumbered your property. A tax lien can greatly affect your life. The purpose of it is to prevent you from selling or borrowing against any of your major assets. more…

  • Receive a Tax Levy
  • A tax levy is the actual seizing of assets that you own. This can be just about any asset that you own with a few exceptions. The IRS will continue to seize your assets until your tax liability is completely paid off or until you have arranged another agreement with them. Depending on what they are seizing, a levy can be called many different names.

    Different types of tax levies:

  • Wage GarnishmentLevy on wages paid
  • Bank Account LevyLevy on your bank account
  • Property SeizureSeizure of your physical assets
  • more…

    What if I Owe State Taxes and Can’t Pay Them?

    Just like the IRS, many states take similar collection actions against individuals and businesses and they also allow for similar resolution methods. Each state has their own rules and resolution methods to various tax problems. Refer to our state tax relief guides to resolving issues with state taxes.

    That is the typical process that the IRS (and some states) takes against all individuals with unpaid back taxes. The sooner action is taken, the less money you will likely end up paying. See the column on the right for the different solutions for dealing with unpaid back taxes if you cannot pay taxes in full.

    Back Tax Solutions If You Cannot Pay

    Failure to Pay Tax Penalty (Penalty for not paying on time)
    If you do not pay taxes when due you will be hit with this penalty. The penalty for not paying taxes or underpaying taxes ranges from 1/4% to 1% . Understand what rate you will be charged and if you can remove the penalties.

    Offer In Compromise Tax Settlement Method
    If you can’t pay taxes in full and don’t think you would ever be able to pay them back, this method could be good for you. This method allows you to settle taxes owed for less than the total amount.

    Tax Repayment Plans

    If you cannot pay taxes in full and IRS payment plan is typically the easiest method to use to get back into compliance with the IRS. Payment plans allow you to pay in monthly increments at a manageable payment amount.

    Currently Not Collectible
    If you prove to the IRS that you do not have the means to pay your back taxes with your current financial standing they will put a temporary hold on collections.

    Delay IRS Collections
    If you just need more time to pay it is possible to delay the automated IRS collection system to buy yourself a bit more time.

    How to Guide on Resolving Delinquent Taxes
    Understand how to go about filing delinquent tax returns and what actions you can take on your end to minimize potential tax penalties.

    IRS Underpayment Penalty and Interest Rates
    With unpaid taxes you are typically hit with tax penalties and interest. Understand what IRS interest rates are for failing to pay or pay in full and what you can do to lessen penalties.