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Michael Keenan
Updated
Though more than two-thirds of tax returns end with the taxpayer getting a refund, according to the Internal Revenue Service, some people end up owing money. You can get an extension to file your taxes, but you can’t get a payment extension.
If you owe back taxes — taxes that weren’t paid on time — due to insufficient withholding tax or another reason, don’t delay because you’ll incur late penalties and the IRS could issue a tax lien on your property. Follow these steps catch up on tax filing and payments, even if you can’t pay your full tax bill right away.
Steps to Pay Off Back Taxes
Even if you’re late on paying taxes you owe, there’s still hope you can remain in good standing with the IRS if you take the right actions. Follow these instructions for paying off back taxes:
Determine how much you owe. If you filed your income tax return but did not pay what you owe, the IRS should mail you a bill for back taxes. The IRS website also gives an up-to-date payoff amount, including interest and penalties, and reflects any payments you’ve made in the past 18 months. Or you can request an account transcript online or by mail.
Make a tax payment to the IRS. If you received a bill from the IRS, follow the instructions on the bill. You can pay by check, money order, cashier’s check, cash or electronic funds transfer with an online tax payment. Payment by credit card or debit card incurs processing fees.
Apply for a payment plan. If you cannot pay your balance in full, the IRS offers different payment plan options.
IRS Payment Plans
Here are details on IRS payment plans available:
Installment Agreements: You can apply for these monthly payment plans on the IRS website if you owe less than $50,000, or via Form 9465 and Form 433-F. Applying for an installment agreement costs money — from $31 if you apply online and choose to pay by direct deposit, to $43 if you qualify as a low-income taxpayer, to as much as $225 for a standard installment payment agreement or a payroll-deduction agreement.
Offer in Compromise: With an OIC, you agree to pay a certain amount and the IRS agrees to accept that amount in full satisfaction of your tax debt. The IRS is very selective about agreeing to OICs — if the IRS believes you can pay the full amount through an installment agreement or other means, the IRS won’t accept an OIC. If the OIC is accepted, you must also agree to pay all taxes in full for the next five years. If you don’t, you have breached the OIC.
The amount of back taxes you owe the IRS will include interest and penalties. Your tax debt will include:
Interest on unpaid taxes: Interest accrues at the federal short-term rate plus 3 percent and is compounded daily. Interest on unpaid taxes compounds daily, so the sooner you make your IRS payment, the less you must pay.
Failure-to-file penalty: If you don’t file your tax return on time, the IRS imposes a failure-to-file penalty equal to 5 percent of the taxes you owe each month, or part of month, until you file, up to a maximum penalty of 25 percent. If you’re more than 60 days late in filing your return, your penalty will be $205 or 100 percent of the amount of tax you owe, whichever is lower.
Failure-to-pay penalty: The IRS also adds a failure-to-pay penalty equal to 0.50 percent of the tax you owe for each month, or part of month, the payment is late, up to a maximum of 25 percent. The 0.50 percent per month doubles to 1 percent per month if the IRS issues a notice of its intent to levy your property and the tax remains unpaid for more than 10 days thereafter.
The IRS Fresh Start initiative ended in 2011, but several other programs are available to help taxpayers with back taxes:
Taxpayer Advocate Service: The TAS is a separate division of the IRS to assist taxpayers in dealing with the IRS. If you have been trying to repay your back taxes and the IRS hasn’t responded, or hasn’t responded timely, contact the TAS at 877-777-4778. Each state also has a TAS office.
IRS Installment Agreement Application: Apply online for a payment agreement as long as you owe less than $50,000 in total taxes, penalties and interest.
Follow these steps to file your past-due income tax returns:
Consult a professional. If you are not comfortable handling the process yourself, seek help from a licensed tax professional.
Complete tax returns for any remaining years. Even if you owe taxes but can’t pay in full, file your delinquent tax returns as soon as possible to stop failure to file penalties from accruing. If you haven’t filed past-due tax returns, the IRS will also hold future refunds until those returns are filed.
File and submit returns. Filing back taxes is typically done through the same method and/or at the same location as you would file an on-time return. If you received a notice from the IRS, however, send your past-due return to the location indicated on the notice.
Keep all records. Be sure to keep records of when and how you submitted the tax returns.
Pay Back Taxes But Beware of Scams
If you owe back taxes, the sooner you can pay off what you owe, the better, so you can stop accruing additional interest and penalties and avoid IRS tax liens. IRS tax scams are becoming more common, however, with some scammers even calling and demanding immediate payment and threatening that you or your family will be arrested or deported. The IRS will reach out to you via regular mail, not over the phone, and will never demand immediate payment or a specific method of payment.
