What If I Owe Over $25,000 to the IRS?
What to Expect and Options for Resolving 25k+ in Tax Debt
Owing the IRS any amount of unpaid taxes can be stressful, but owing more than $25,000 to the IRS is enough to keep taxpayers awake at night. While this number may sound insurmountable, it is manageable with the right help and support. At this level of tax debt, the IRS may come after you for the unpaid balance, but you also have the right to access several different payment plans or relief options.
Key Takeaways:
- Consequences of owing more than 25k
- Liens
- Levies
- Loss of tax refunds
- Penalties up to $12,500 or more
- Possible interest of $2,000 or more per year
- Relief options if you owe more than 25k
- Up to six-year payment plans with a minimum monthly payment of $350+
- Payment plan approval with no collection information statement if you owe less than $50k and set up auto payments.
- Partial payment plans are available if you can’t afford the minimum payment.
- Offer in compromise to settle for less than full amount for qualifying taxpayers.
- Currently not collectible status is available if you have limited income and assets.
Consequences When You Owe the IRS More than $25,000
There are numerous consequences that come with owing the IRS more than $25,000. You risk the loss of assets, the loss of property rights, and significant penalties and interest.
Federal Tax Liens
The IRS has the authority to file a Notice of Federal Tax Lien against you if you have unpaid taxes, but usually, the agency doesn’t issue a lien unless you owe at least $10,000. A lien gives the IRS a legal claim to all of your property, including bank accounts, real estate, vehicles, retirement accounts, and other assets.
For example, if you sell a boat while there is a tax lien against you. The tax lien will be attached to the boat’s title, and any proceeds you earn from the sale (up to the amount owed to the IRS) must go to the IRS instead of to you.
Tax Levies
If a lien does not spur you into action, the IRS may move forward with a levy, which involves actually seizing certain assets to fulfill your tax obligation. If you owe $25,000 or more, the IRS may seize wages, bank accounts, investment accounts, and other assets that you owe. There are only a few assets that the IRS doesn’t have the right to seize.
Loss of Tax Refunds
The IRS also has the legal authority to seize your tax refunds when you owe them money. This can be particularly difficult for families who count on that money to make ends meet each year. While there may be ways to get your tax refund, particularly if you can prove that not getting your tax refund will result in significant financial hardship for your family, these options are not available to most people. The IRS can seize both your state and federal tax refunds.
Significant Penalties and Interest
The more money you owe the IRS, the more quickly your penalties and interest can snowball. While both the failure-to-file and failure-to-pay penalty cap at 25% of your initial tax debt, they stack on top of each other, and that means you could accrue $12,500 in penalties on a $25,000 debt if you do not file or pay on time. If you file on time but do not pay on time, your penalty will cap at $6,250 on $25,000.
The IRS also assesses interest on unpaid taxes, and as of 2024, the rate is 8% and it compounds daily. On a $25,000 tax debt, the interest alone is $2,000 per year, and that’s not taking into account the interest that accumulates on penalties.
Payment Options When You Owe More Than $25,000
The sooner you consider your payment options and decide which option is the best fit for your financial situation, the sooner you can start taking control of your tax situation and trimming down your tax debt.
Installment Agreement
If you have over $25,000 in tax debt but less than $100,000, you can qualify for a short-term payment plan online. This requires you to pay the balance in full within six months of the due date.
Unfortunately, when you owe $25,000, you cannot qualify for a guaranteed installment agreement. This option is only available to those who owe $10,000 or less and can pay off the debt within three years.
However, you may qualify for a streamlined installment agreement. The first tier of streamlined installment agreements is accessible to those who owe $25,000 or less. At this level of tax debt, as long as you have a history of compliance, you can set up payments for up to six years, and you don’t need to provide a financial disclosure. You can opt to mail in payments, pay online, or set up auto payments.
The second tier is available to those who owe more than $25,000 but less than $50,000. At this level of tax debt, you can also make monthly payments for up to six years. However, you will either need to complete a collection information statement or agree to automatic withdrawals from your bank account. Payroll deductions are also available.
Offer in Compromise
Taxpayers with limited income and assets may qualify for an offer in compromise. The IRS requires an extensive amount of financial documentation for those who apply, and in general, fewer than half of the applicants are approved.
When deciding whether or not someone can afford to pay their taxes—either in full or via an installment agreement—the IRS looks at all of their financial information. This includes information that taxpayers may not consider in their decision-making process. For example, many taxpayers would not consider tapping into their home equity to pay off tax debt—doing so could technically put their home in jeopardy if they cannot pay the debt off. The same is true if they have a vehicle with substantial equity, valuable retirement accounts, or savings accounts.
However, the IRS fully expects taxpayers to use those resources before asking the IRS to write off part of their debt in an offer in compromise. If you think this may be a viable route for you, we recommend talking to a tax attorney so they can look at your financial information and help you assess your chances of approval.
Partial Payment Installment Agreement
If you cannot afford the amount you would owe on a regular installment agreement—a minimum of $350 on $25,000 owed—a Partial Payment Installment Agreement may be a good choice to explore. With a PPIA, you make the highest monthly payment you can afford. To establish this number, you provide the IRS with detailed financial information.
You make monthly payments until the Collection Statute Expiration Date (CSED) which is the last date that the IRS can legally collect the taxes. At the CSED, any remaining tax debt is written off. These arrangements are not set in stone. At any point during your PPIA, the IRS can request additional financial information to determine whether or not your situation has changed enough to allow you to pay your tax debt in full.
Currently Not Collectible
Perhaps you know that you owe the IRS money and you agree with their assessment, but you are still unable to pay. If you provide the IRS a detailed breakdown of your expenses and they find that you are unable to pay both your living expenses and your tax debt, they may agree to place you in currently not collectible status.
When you are currently not collectible, they stop attempting to collect any payment from you. As is the case with PPIA and an offer in compromise, they expect you to sell off unnecessary assets and make use of any available equity before they place you in currently not collectible status. Interest and penalties continue to accrue, which can significantly increase your tax bill by the time the IRS resumes collection activities.
What Do I Do If I Can’t Pay My Taxes?
Unfortunately, many people delay making payment arrangements or reaching out to the IRS specifically because they are unable to pay their taxes. But this isn’t a situation where ignoring the situation makes it better.
The IRS understands that there are times when people cannot pay their taxes, particularly if they have lost a job, gone through a divorce, lost a family member, suffered a serious illness, or otherwise experienced a dramatic change in circumstances. But they cannot work with you to come up with other payment arrangements if you do not tell them about your situation.
When you owe the IRS more than $25,000, the agency will come after the money, and the time to take action is now. Each day that you wait is another day that penalties and interest are accruing, and they snowball out of control very quickly at this level.
When It’s Time to Talk to a Tax Professional
If you’ve accumulated more than $25,000 in debt to the IRS, it’s time to reach out to a tax professional like those at McLaud Law P.C. We have helped many taxpayers get out of significant tax debt—we’ve even helped those who owe hundreds of thousands or more to the IRS.
You have options, but you can’t take advantage of those options until you ask for help. It all starts with a consultation with our team—fill out our online contact form or call us at 585-397-7785 to set up a time to meet now.
This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.