Unpaid Taxes

If you fail to pay your taxes owed by the due date, you will incur penalties and interest charges, on top of your original debt. When a tax liability remains unpaid after several official requests for payment (notices), the IRS may take legal action, such as placing a lien on your property or garnishing your wages. 

That’s why it’s a good idea to communicate with the IRS if you’re unable to pay on time. This can help you minimize penalties and access options such as installment plans and other alternative payment options.

What is the definition of delinquent taxes?

Delinquent taxes refer to any unpaid taxes. The phrase includes both individual and business taxes on the federal, state, or local level. If you file a return and don’t pay, the taxes are delinquent. They are also delinquent if you don’t file a return that you should have filed. 

What are the penalties for unpaid taxes?

There are many different types of penalties issued by the IRS to individuals and businesses for tax-related issues. Some of the most common penalties include failure to file, failure to pay, and accuracy-related penalties.

The IRS also charges interest on penalties, so that the longer your issue goes unresolved, the more you’ll have to pay when you finally address the problem. If you can’t afford to pay a tax bill, you can always contact the IRS and arrange a payment plan or perhaps even qualify for Currently Not Collectible (CNC) status or an Offer in Compromise (OIC).

What is the Failure-to-Pay Penalty?

This penalty applies if you don’t pay your taxes when due. It’s calculated at 0.5% of the taxes owed for each month that it remains unpaid, up to 25%. For example, if you owe $10,000, the late payment penalty is $50 per month. It increases to 1% per month after a certain period of delinquency. 

What is the Failure-to-File Penalty?

This applies if you don’t file your tax return by the due date. It’s calculated at 5% of the unpaid taxes for each month or part of a month that your tax return is late, up to a maximum of 25%. For example, on a $10,000 tax liability, this penalty is $500 per month. Typically, this penalty maxes out when your return is five or six months late. If you haven’t filed for years, you may have maxed out this penalty on several different tax years.

What is the interest rate on unpaid IRS Taxes?

As of January 2024, the current quarterly interest rate for underpayment is 8%. The rate changes quarterly, and it’s the short-term interest rate plus three. The IRS charges a slightly higher interest rate on unpaid corporate taxes. 

What are my options if I can’t pay taxes in full?

If you can’t pay your taxes in full, there are plenty of options. The key is to be proactive and seek help as soon as you need it. The IRS offers payment plans (known as Installment Agreements), Offer-in-Compromise, and Currently-Not-Collectible status to eligible individuals.

Beyond that, you could also consider using a credit card to pay your taxes but keep in mind that commercial credit rates will be much higher than the IRS interest rates. Lastly, and perhaps most importantly, it can be helpful to consult with a tax professional to explore your options and work toward the best possible outcome with confidence.

How can I find out how much I owe in IRS taxes?

You can calculate your taxes owed by logging in to your IRS online account. Your online account will also show which returns you have filed and copies of income documents filed by employers, banks, and other entities. 

What will the IRS do if I don’t pay taxes?

If you don’t pay your taxes, the IRS may take various actions to collect the taxes owed. First of all, your account will be charged with penalties and interest on top of the taxes owed. If the balance remains unpaid, the IRS will begin to issue formal notices via mail, reminding you to pay the taxes owed. The agency often starts with a reminder of the balance due and then progresses to notices like the CP504.

These collection notices will then escalate your situation if you continue to ignore your tax liability, eventually resulting in the threat and then the execution of a federal lien on your property. This can then lead to wage garnishment and seizure of property. If you don’t pay state taxes, you will face similar consequences on the state level, and some state tax agencies like the New York Department of Taxation and Finance also have the authority to suspend your driver’s license.

Will the IRS take my tax refund if I don’t pay taxes?

Yes, if you owe federal taxes and fail to pay them, the IRS has the authority to claim your tax refund in order to satisfy the outstanding debt. This process is known as a tax refund offset.

The IRS will typically send a notice informing you of the intent to offset your refund. The notice will include details about the amount owed, including any penalties and interest. This will be the last opportunity to pay your taxes before your tax refund is offset. The IRS can also seize your state tax refund for unpaid taxes. 

Can I go to jail for unpaid taxes?

In most cases, you’re not going to be sent to jail or imprisoned solely for unpaid taxes. However, there are certain circumstances in which criminal charges could be brought for intentional tax evasion or fraud. The IRS generally focuses on collecting unpaid taxes through civil procedures, such as liens, levies, and wage garnishments.

What is a tax lien?

A tax lien is a legal claim by a government authority, typically the IRS at the federal level, against a taxpayer’s property. It is a way for the government to secure the repayment of a tax debt.

What is a tax levy?

While a tax lien is a legal claim against a taxpayer’s property, a tax levy involves the actual seizure and sale of the property to cover the taxes owed.

What is a wage garnishment?

A wage garnishment is when the IRS legally requests your employer to withhold a portion of your wages in order to satisfy your tax debt. The IRS can take a significant portion of your paycheck–the agency is only required to leave you a small amount of income for essential living expenses. 

Can the IRS take my home for unpaid taxes?

While the IRS has the authority to place a federal tax lien on your property for unpaid taxes (including your home), it doesn’t automatically result in the immediate seizure of your home. 

In general, the IRS will try to resolve tax debts through other means, such as payment plans or settlements. However, if the tax debt remains unpaid after attempts to resolve the issue have failed, the IRS could potentially initiate the process of seizing and selling your home to satisfy the tax debt if your debt is significant enough.

What is the statute of limitations for the IRS to collect taxes?

The statute of limitations for the IRS to collect unpaid taxes is typically 10 years from the date of assessment. However, this period may be extended in certain situations, such as when the taxpayer applies for a payment agreement, files for bankruptcy, or if the IRS takes legal action to collect the debt. 

What if my spouse owes taxes?

If your spouse owes taxes, your liability for the debt will depend on whether you filed a joint tax return or separate returns. With a joint return, both spouses are generally jointly liable for the tax debt. In this case, Innocent Spouse Relief may be an option if you were unaware of your spouse’s debt or the errors they made on the return. If you filed separate returns, you are usually not responsible for your spouse’s tax debt, but consider community property rules if you live in a community property state.

What if a deceased person owes taxes?

In the event that a deceased person owes taxes, the responsibility for settling the tax debt will generally remain with their estate. The executor or administrator of the estate is responsible for handling the deceased person’s financial affairs, including resolving any outstanding tax liabilities. 

If the estate does not have sufficient assets to cover the tax debt, the remaining amount may go unpaid. In this case, it’s important for the executor to communicate with the IRS and follow the appropriate procedures for settling the deceased person’s tax obligations.

What if I owe less than 10K in taxes, what are my options?

If you owe less than 10k in taxes to the IRS, you may be eligible for an installment plan, offer-in-compromise, or even a delay to collections if you’re facing financial hardship. It’s crucial to communicate with the IRS if you’re unsure about how to pay your tax debt. Consult a tax professional to help you decide the best path forward.

What if I owe between 10K and 50K in taxes?

If you owe between 10k and 50k in taxes to the IRS, you need to take action. The IRS files tax liens when you owe more than $10,000, and at these levels of debt, the agency may also garnish your wages or seize your assets.

You can consider setting up an installment agreement to make monthly payments against your debt. If you owe less than $50K, you can apply online for an Online Payment Agreement (OPA). Alternatively, if you cannot afford payments, you may want to see if you can qualify for a Partial Payment Installment Agreement or even an Offer-in-Compromise.

What if I owe more than 25K in taxes?

The IRS steps up collection efforts when a taxpayer owes more than $25,000. The IRS may file a tax lien on your assets, levy your assets, and seize your tax refund. There are numerous payment options you may consider, including installment agreements or an offer in compromise.

What if I owe between 50K and 100K in taxes?

With larger debts, it becomes increasingly essential to contact the IRS as early as possible in order to establish a way forward with your debt. If you owe between 50k and 100k in taxes to the IRS, you can request a payment plan, but the agency may require more details about your finances. If you have limited income and assets, you may be able to qualify for an offer in compromise or a partial payment installment agreement. 

If you don’t pay, the agency can take collection actions against you, such as wage garnishment and asset seizure. Note that as of 2024, if you owe more than $62,000, the IRS can tell the State Department to take away your passport. 

What if I owe over 100K in taxes?

If you owe over 100k in taxes to the IRS, addressing the debt becomes more complex and you’ll almost certainly need the help of a tax professional. In addition to considering payment plans and other options with the IRS, you may also need to look at other options such as loans. 

Can I get a mortgage if I have unpaid taxes?

Landing a mortgage when you have unpaid taxes can be a challenge, but it doesn’t make it impossible. To improve your chances of getting a mortgage, make sure that you have an established payment plan with the IRS. Lenders will generally not work with you if you’re just ignoring your tax debt. 

Mortgage lenders will generally assess your financial stability, creditworthiness, and overall debt situation when considering your loan application. Unpaid taxes will be a negative from a lender’s perspective, but that doesn’t mean you’ll get rejected – often, it may just result in a higher interest rate or less favorable terms.

Many lenders and real estate attorneys will tell you that a tax lien on file will prevent you from selling your home or financing the purchase of your new home. This is not necessarily true. A skilled tax professional like those at McLaud Law often can work with your lender and/or real estate attorney to deal with the tax lien in a way that allows the transaction to proceed.

What types of professionals can help me with unpaid taxes?

Several types of legal and financial professions can assist with unpaid taxes. They include tax attorneys, Certified Public Accountants (CPAs), and Enrolled Agents (EAs). These different certifications often indicate different backgrounds and skill sets within the tax world. When hiring a professional, look for someone who has dedicated experience dealing with the kind of tax issue you are confronting.

How to Get Help With Unpaid Taxes

To get help with unpaid taxes, contact us at McLaud Law today. We’ll start with a free consultation. Then, we’ll help you find the best solution based on your unique budget, goals, and tax problem. We can also help you deal with NYS tax problems including audits, requesting state tax payment plans, and more. Use the online form to schedule a consultation today, or give us a call at 585-397-7785.